Oil gained as a series of challenges to supply eclipsed concern about the lingering threat to energy demand from lockdowns in China.
West Texas Intermediate topped $103 a barrel after alternating between gains and losses this week. As the Ukraine war grinds on, European Union members are moving to cut dependence on Russian oil, with German Foreign Minister Annalena Baerbock saying the country plans to stop imports by year-end. At the same time, Russian output has fallen, and protests in Libya hurt supply.
Oil has rallied by more than a third this year, hitting the highest since 2008 after Russia’s invasion of its smaller neighbor sent shockwaves through the global energy market. The conflict has boosted inflation and spurred a rerouting of crude flows. The US and UK have moved to ban Russian oil, and there’s rising pressure on the EU to follow suit. Washington and its allies also announced the release of substantial holdings from strategic reserves.
The oil’s market’s risks are “pointing to the downside,” said Gao Jian, an analyst at Zhaojin Futures Co. “Concerns over the macro economy are really growing, and traders don’t seem to believe Germany’s plan to ban Russian oil. Moreover, a coordinated SPR release will start flowing to market in May.”
In China, meanwhile, officials are struggling to eradicate a wave of Covid-19 in key cities. Strict curbs have hurt mobility, including for the nation’s fleet of trucks, and banks are reducing their forecasts from the nation’s expansion this year. President Xi Jinping told a local forum that while economic fundamentals remain strong, “we have yet to walk from the shadow”of the pandemic.
While oil markets remain in a bullish backwardated pattern, with near-term prices above longer-dated ones, differentials have swung wildly. Brent’s prompt spread, the difference between its two nearest contracts was 51 cents a barrel on Thursday. It was $1.22 on Monday and $3.70 a month ago.
US commercial stockpiles dropped by around 8 million barrels last week, according to Energy Information Administration data. That was the biggest drawdown in holdings since January 2021.
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