Drifting Lower As Broader Risk Appetite Softens

Brent crude is down slightly from NY closing levels, last tracking sub $106/bbl, but has respected recent ranges since the start of this week. It's been a similar pattern for WTI, sitting close to $102.50/bbl currently. Cross asset signals have been negative, with equities lower and the USD gaining further ground.

• Broader energy commodity trends continue to outperform the metals complex, with supply pressures clearly holding up energy prices relative to metals.
• Today in Sydney, IEA Executive Director Fatih Birol stated that we may not have seen the worst of the energy crisis. He also stated this winter in the EU will be very difficult.
• The US is also trying to garner fresh support for its proposal to cap Russian oil export prices at $40-$60. This comes as US Treasury Secretary Yellen kicks off a 10 day trip to Asia, starting in Japan. Japan officials have already reportedly stated the cap could be too low, although haven’t rejected the proposal. US officials have stated failure to implement a cap could result in oil prices rising to $140/bbl. Clearly, there still needs to be lots of detail worked out with this plan.
• Elsewhere, US National Security Advisor Sullivan stated the US does believe OPEC has more oil capacity. This comes ahead of Biden's trip to Saudi Arabia this week.
• China Covid developments remain negative at the margin, onshore equities continue to weaken, while the city of Wugang was placed into a 3 day lockdown after 1 covid case was discovered. Close to 30 million people in China are currently in lockdown.