Oil drops as Russian price-cap talks drag on and demand lags

Oil fell for a second day as the European Union considered a higher-than-expected price cap on Russian crude and evidence mounted of challenges to demand.

West Texas Intermediate slipped below US$78, trading in a narrow range and with volumes thin due to a U.S. holiday. EU diplomats are locked in negotiations over how strict the Russian mechanism should be, after discussing capping the country’s seaborne exports at US$65 to US$70 a barrel. The resumption of talks to finalize the cap was delayed beyond Thursday as more time was needed to overcome the differences, according to people familiar with the matter. 

Goldman Sachs Group Inc. said the higher price cap being considered may reduce the risk of Moscow retaliating, though it expressed doubt that the mechanism could be enforced.

Mounting headwinds in the two largest economies threaten energy demand. In the U.S., Federal Reserve economists briefed policymakers that the chance of a recession in the next year had risen to almost 50 per cent as interest rates climb. In China, officials are pressing on with aggressive efforts to check the spread of Covid-19, ordering lockdowns and movement curbs as daily virus cases swelled to near 30,000 -- the most during the pandemic.