Oil holds near US$78 as EU price-cap talks drag and demand lags

Oil held steady as the European Union considered a higher-than-expected price cap on Russian crude and signs of challenges to demand increased.

West Texas Intermediate hovered around US$78 a barrel after losing almost 4 per cent in the previous session, with volumes likely to be thin due to a U.S. holiday. EU diplomats are optimistic they can reach a deal on Russian oil after discussing capping the country's seaborne exports at US$65 to US$70 a barrel. There are some differences between countries on the details, with Poland rejecting US$65 as being too soft on Moscow and Greece not wanting to go below US$70.

Goldman Sachs Group Inc. said the higher price cap being considered may reduce the risk of Moscow retaliating, although 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 policy makers 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.