Aramco announced that Saudi Arabia has dropped the January official selling price (OSP) for its flagship Arab Light crude for Asian buyers to a 10-month low.
The price is $2.20 a barrel below official selling prices for December, so the demand outlook remains fragile.
The largest oil exporter set the official selling price of Arab Light crude to northwest Europe at $0.10 lower than Brent crude in January, $1.80 less than its December price.
The US selling price remained unchanged from last month at $6.35 above the Argus Sour Crude Index (ASCI) for January.
OPEC+ decision and market stability
The Organization of the Petroleum Exporting Countries and allies, including Russia, also known as OPEC+, maintained their previous crude output target during their Sunday virtual meeting.
OPEC+ kept their oil production targets unchanged before the European Union's ban on Russian crude took effect, and the G7 imposed a maximum price on its prices, starting Monday.
Oil prices rose on Monday after the OPEC+ decision, and in a positive sign of fuel demand from the largest oil importer in the world, as more Chinese cities relaxed COVID-19 restrictions at the beginning of the week.
Brent crude futures settled down $2.89, or 3.4 percent, at $82.68 a barrel. West Texas Intermediate crude fell $3.05, or 3.8 percent, to $76.93 a barrel. Both benchmarks had earlier risen more than $2 before reversing direction.
"The decision ... is not a surprise, given the uncertainty in the market over the impact of the Dec. 5 EU Russia crude oil import ban and the G7 price cap," said Ann-Louise Hittle, vice president of consultancy Wood Mackenzie told Reuters.
"In addition, the producers' group faces downside risk from the potential for weakening global economic growth and China's zero COVID policy."
Chinese business and manufacturing sectors, the second largest economy in the world, have been affected this year by the strict COVID-19 restrictions.
Russian oil embargo
The European ban prohibiting Russian crude oil imports by sea entered into force as of Monday, with limited exceptions for Hungary, Slovakia, and the Czech Republic.
The EU and the G7 also agreed on Friday to cap the price of Russian crude oil at $60 a barrel, a policy aimed at Moscow's other customers, and it entered into effect on Monday, too.
An EU document showed that the price cap would be reviewed every two months, using Russian oil prices provided by the International Energy Agency as a reference.
Kremlin spokesman Dmitry Peskov told reporters that Russia is preparing a response to the decision of Western countries to impose a price ceiling on its oil.
Peskov announced that a decision is being taken, and Russia would not recognize "any ceilings," adding that adopting such choices is "a step towards destabilizing the world energy market."
Meanwhile, Japan implemented a price cap on Russian crude oil under the Foreign Exchange and Foreign Trade Law.
Bloomberg stated, quoting the Japanese Finance Ministry of Finance, that Russian oil traded above the limit will be effectively banned, excluding crude oil imported from the Sakhalin-2 plant.