Oil fluctuated as China vowed to repair the economic damage caused by a spate of lockdowns, and crude supplies from Libya were disrupted.
Global benchmark Brent traded below $113 a barrel after a four-day winning run. The impact of the pandemic on China’s economy is short term and normal conditions will be “rapidly restored” after the current outbreak is contained, a spokesperson for the top economic planner said on Tuesday. That came a day after the central bank moved to aid individuals and small businesses.
Libya’s oil production has fallen by more than half a million barrels a day and there’s a risk of further losses as a wave of political demonstrations engulfs the OPEC member. The Sharara field in the west of the country, which can pump 300,000 barrels a day, has been closed as protests spread.
Oil has advanced more than 40% this year as Russia’s invasion of Ukraine upended an already-tight market. The crisis is rerouting global crude flows, with the U.S. and U.K. moving to ban the import of Russian barrels, while some Asian buyers take extra cargoes. At the same time as the war drags on, there’s mounting pressure on the European Union to also curb its imports.
“The demand impact of China lockdowns and the outages in Libya are on the oil market radar,” said Vandana Hari, founder of Vanda Insights. “But the prospect of the EU phasing out Russian oil imports is the key sentiment driver.”
French Finance Minister Bruno Le Maire said on Tuesday that it’s necessary “more than ever” to stop oil imports from Russia, reflecting the debate within the energy-dependent bloc about the merits of restricting flows. France hoped to convince EU partners “in coming weeks,” Le Maire told Europe 1 radio.
-Brent for June settlement was 0.4% lower at $112.75 a barrel on the ICE Futures Europe exchange at 7:38 a.m. in London.
-West Texas Intermediate for May delivery fell 0.5% to $107.67 a barrel on the New York Mercantile Exchange.
As Covid-19 has flared in Asia’s top economy, Beijing has ordered severe lockdowns in urban centers including Shanghai, the commercial capital. That’s weighed on energy consumption as mobility sinks and industrial output slows.
Oil markets remain backwardated, a bullish pattern that’s marked by near-term prices trading higher than longer-dated ones. Brent’s prompt spread — the difference between its two nearest futures contracts — was $1.26 a barrel in backwardation, up from 42 cents a week ago.
This year’s jump in oil prices spurred U.S. President Joe Biden to order the release of millions of barrels from emergency stockpiles. Following the move, a cargo of crude from the nation’s Strategic Petroleum Reserve departed a Texas port bound for Europe as some local refiners shun Russian supplies.
The recent gains in crude as well as other commodities are fanning inflation, prompting central banks to tighten policy. On Monday, Federal Reserve Bank of St. Louis President James Bullard said the U.S. central bank shouldn’t rule out rate increases of 75 basis points.