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LONDON: Oil prices fell by more than $2 a barrel on Wednesday as the Group of Seven (G7) nations looked at a price cap on Russian oil above where the crude grade is currently trading.

Brent crude futures fell $2.82, or 3.19%, to $85.54 a barrel by 1450 GMT, while U.S. West Texas Intermediate (WTI) crude futures were down $2.62, or 3.24%, at $78.33 a barrel.

Both contracts fell by as much as $3/bbl after rising by over $1/bbl earlier in the session, “following reports that the G7 price cap on Russian oil could be above the level it is trading at the moment”, said Giovanni Staunovo, commodity analyst at UBS.

G7 nations are looking at a price cap on Russian seaborne oil in the range of $65-70/bbl, according to a European official on Wednesday.

Meanwhile, Urals crude delivered to northwest Europe; is trading around $62-$63/bbl, although it is higher in the Mediterranean; at around $67-$68/bbl, according to Refinitiv data.

Because production costs are estimated at around $20 per barrel, the cap would still make it profitable for Russia to sell its oil and in this way prevent a supply shortage on the global market.

Oil rises as OPEC+ focus on supply cuts outweighs recession concerns

A senior U.S. Treasury official said on Tuesday that the price cap will probably be adjusted a few times a year.

The news added to demand concerns relating to top crude oil importer China, which has been grappling with a surge in COVID-19 cases, with Shanghai tightening rules late on Tuesday.

Also adding pressure was an OECD economic outlook that sees a deceleration in global economic expansion next year. “On the bright side, the OECD does not envisage a global recession and maybe this helped oil prices and stocks strengthen further,” said analyst Tamas Varga at PVM Oil Associates.

The market also awaits the minutes from the U.S. Federal Reserve’s November policy meeting due at 1900 GMT for clues on possible economic contraction and further rate hikes, Varga said.

The price decline was limited by a fall in U.S. crude inventories, which were down by about 4.8 million barrels for the week ended Nov. 18, data from the American Petroleum Institute showed, according to market sources.

U.S. stock data from the Energy Information Administration (EIA) is due at 10:30 a.m. (1530 GMT) on Wednesday.

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