Oil Nears Pre-war Levels As China Remains In Lockdown

Oil prices are facing another weekly loss, following their biggest weekly loss in two years last week, and almost back to levels before the war in Ukraine began as the market priced in the massive release of oil from emergency reserves, Commerzbank said in a note.

Given the extension of the lockdown in Shanghai and the high infection numbers across the country by Chinese standards, repeated lockdowns could emerge following the Chinese government’s determination to stick with its zero-COVID policy, affecting oil demand, the bank noted.

Meanwhile, Russia has been finding buyers for its oil as all May cargoes of crude oil of the Sokol type from the Sakhalin-1 project have been purchased, Commerzbank said. The cargoes are to be shipped to Japan, South Korea, China and India, the bank said, citing trading sources.

However, the individual moratoriums on Russian oil in the West have forced the country to scale back its oil production, according to Commerzbank. Oil production in the first six days of April saw the most pronounced month-on-month decline since the voluntary cuts implemented in line with the OPEC+ agreement in May 2020, the bank said.

Crude prices edged up early on Friday, rebounding from the three-straight losing sessions following the release of strategic reserves from the United States and other members of the International Energy Agency.

West Texas Intermediate crude for May delivery was last seen up US$0.58 to US$96.61 per barrel, while June Brent crude, the global benchmark, was up US$0.26 to US$100.84.

The release of 60-million barrels of strategic reserves from IEA members, adding to 100-million barrels being released from the US Strategic Petroleum Reserve has somewhat calmed market worries about the loss of Russian crude due to financial sanctions imposed following the invasion of Ukraine and buyer distaste.

A continuing lockdown of Shanghai by Chinese authorities looking to stamp out rising Covid-19 infections is also easing demand worries, as the city idles. READ: Oil Prices Near 7-Year High on Tight Supply.

“Oil prices are now almost back where they were before the war in Ukraine began around six weeks ago. The fact that the lockdown in Shanghai has been extended by the authorities there has no doubt also contributed to the price slide.

“This means that the business metropolis with its 25 million inhabitants, which accounts for around 4% of Chinese oil demand, is condemned to remain at a standstill,” Commerzbank analyst Carsten Fritsch said in a note.

Nigerian offers sink amid slow buying

In a report, Reuters said offers for some kinds of Nigerian crude slipped on Friday as buyer reluctance and higher freight rates have outweighed the scarcity of Russian crude. Freight rates and slow sales have sapped offer levels for Nigerian crude, especially light sweet varieties.

Qua Iboe crude was being offered for below dated Brent plus $3, down at least 50 cents compared to last week. Around 20-25 cargoes for loading in May have yet to find buyers, traders said.

IEA listed members’ contributions to a 120-million-barrel release of crude and oil products from emergency stockpiles aimed at cooling global oil prices following Russia’s invasion of Ukraine.