Crude Oil Prices May Bounce Back After Initial China Lockdown Shock
The initial shock to crude oil prices from the Lockdown in China is likely to be short lived, as markets are likely to bounce back after looking past the situation in Beijing. While China has pledged strict containment measures, the Covid virus outbreak may spread to other major cities. The supply chain is not yet on the verge of breaking, and there are options for investing in oil-delivery dates.
Export restrictions will be key to avoid panic
The Chinese government’s latest move against Covid, the infectious disease that causes cholera, has resulted in a two-stage lockdown in Shanghai. Though it is unclear whether this lockdown will be nationwide, the move could be influenced by Beijing, which is sticking to its “Zero Covid” policy. This is especially important as China is the world’s largest oil importer. The reduction in demand will have a knock-on effect on energy prices.
Supply chain isn’t snapping
The global oil supply chain isn’t snapping – not yet. China’s initial lockdown shocked global markets, but this shock has blown off in part as speculative froth has been stripped away and as worries about weaker Chinese demand have decreased. While the number of confirmed cases of Covid isn’t as high as in other countries, it’s still significant. Outbreaks in the country have sickened over 15,000 people – a record based on the highly contagious omicron variant.
Options for investing in oil-delivery dates
When it comes to making money in the oil market, there are many ways to do it. You can buy future contracts in the oil market, such as the crude contract, and speculate on when it will be delivered. However, you must remember that oil futures prices are more volatile than current oil prices, and you are not locked into a long-term contract. However, one advantage to this type of investment is that you can buy an oil contract for just one time without incurring any payments. You can also buy oil-company shares, as many of them are well positioned to weather the current storm.
Russia’s oil exports are still on the table
President Donald Trump’s administration is debating whether to sanction Russian oil exports. The Trump administration has said that sanctions on Russian oil exports would have a profound impact on domestic gas prices and could lead to a global oil supply disruption. However, the White House is concerned about the impact on its domestic economy. So, the White House is considering other measures to punish Russia. For now, the main focus is on minimizing the impact on domestic gas prices.
Demand is growing
The global economy is regaining its momentum, and demand for crude oil is set to surpass pre-pandemic levels in 2022. The International Energy Agency predicts a 5.5 million barrel per day increase in world oil consumption in 2021 and another 3.3 million barrels per day increase in 2022. OPEC projects that world oil consumption will exceed 100 million b/d by 2026. This would be an increase of almost 4 million barrels per day over the previous year.
Saudi Arabia
The recent lockdown in China has had a profound impact on global energy prices. While it is unlikely to permanently shut down the country’s oil supply, it has triggered a significant decline in prices. The Chinese government has taken steps to limit the spread of Covid, which has been causing widespread illness. Although the number of cases is still small compared to other countries, recent outbreaks of Covid in China have infected more than 15,000 people and stem from a highly transmissible form of the virus.
Russia
The oil market has suffered a blow after China’s lockdown triggered a sharp decline in prices. While the odds of a cease-fire have increased in recent weeks, Western sanctions are likely to remain in place. Further, the divestiture of Russian oil is likely to continue indefinitely. If this happens, it may force Russia to halt production and lower prices.
U.S.
Despite China’s escalating conflict with Russia, oil prices are still 80% higher than a year ago. Although the war in Ukraine helped drive up the price, traders are now worried about the impact of Beijing’s zero-tolerance policy on the oil market. Traders are now anticipating further supply chain disruptions and lower demand. If this happens, the price of crude oil may rebound.
