Crude oil prices have been falling rapidly for the past two days, a mild rise is seen today. During APAC’s mid-day session, Brent and WTI are trading at $97.5 and $101, respectively. It may make sense for a technical rebound, but the world’s largest oil importer China has announced lockdowns in its key cities, and various major supply chains can be interrupted. Travel bans are imposed on the northern town of Jilin and also on Shanghai (the financial hub of China). Other countries experienced shock waves as the ‘silicon valley’ of china, Shenzhen, was in lockdown for seven days straight, which disrupted supply chains.
Strict social distancing measures are implemented in various other parts of the country as more cases arise. The country’s energy consumption and raw material will be affected by these efforts.
When the cases start to reduce and come back to normalcy is still in question. Beijing has a zero covid strategy which predicts that this lockdown could be lengthier, and crude oil prices may hike substantially in the weeks to come.
Daily New Covid 19 cases in China
In 2020, China, the largest global oil importer, purchased $176 billion of dark liquid. China accounts for a quarter of global oil imports alone. Therefore, energy demand has an outsized impact on the country’s economic growth. Saudi Arabia and Beijing are negotiating bilateral oil sales in the Chinese currency Renminbi. Sanctions on Russia and the ongoing Ukraine war have brought new challenges of finding US currency-based market alternatives.
For the week ending, a copious inventory build of 3.75 million was reported by the American Petroleum Institute (API). In the previous week, a decline of 0.88 million was predicted by analysts. At the same time, API said a build of 2.81 million barrels is causing demand destruction, as pointed out by rising inventories. They were driving a dent in consumption as energy prices were soaring.
Last week, WTI crude oil prices hit a multi-year high and had pulled back sharply after that. Buyers are looking for profit-taking, and the prices are undergoing a technical correction.