Crude Oil Bulls Betting on Russian Oil Ban, Bears on China Demand Drop

U.S. West Texas Intermediate crude oil and international-benchmark Brent crude oil futures jumped to their highest level in more than a week on Friday before closing lower. Nonetheless, the markets were able to hold on to their weekly gains.

Helping to drive prices higher last week were fears over Russian supply distribution. The news offset COVID-19 lockdowns in China, the world’s biggest crude importer, that are raising demand concerns.

Last week, June WTI crude oil settled at $104.69, up $2.62 or +2.57%. July Brent crude oil finished at $107.14, up $0.99 or +0.92% and the United States Oil Fund ETF (USO) closed at $77.16, up $0.85 or +1.11%.

Meanwhile, on the supply side, OPEC+ is likely to stick to its existing deal and agree to another small output increase for June when it meets on May 5, six sources from the producer group told Reuters on Thursday.

Mixed EIA Report Highlights Global Demand for US Energy Products

Although crude inventories rose by 692,000 barrels in the week to April 22 to 414.4 million barrels, short of analysts’ expectations in a Reuters poll for a 2 million-barrel rise, the markets were supported because of a drop in U.S. fuel stocks.

Distillate stockpiles, which include diesel and heating oil, fell by 1.4 million barrels in the week to 107.3 million barrels, driving those stocks to their lowest level since May of 2008.

Demand for heating oil is also likely to increase because Moscow has halted gas supplies to Bulgaria and Poland for rejecting its demand for payment in roubles. Conditions could even worsen if Russia decides to stop supplying other countries with gas.

Weekly Forecast

The embargo news is expected to contribute to heightened volatility this week along with demand concerns as China shows no signs of easing lockdown measures despite the impact on its economy and global supply chains.

The current choppy price action is a reflection of the ongoing battle between supply and demand. China’s lockdowns are raising fears that crude oil demand from factories will drop over the near-term. However, an embargo of Russian oil will make global supplies even tighter.

Traders are also on edge because of the Fed’s mission to slow down inflation by slowing down economic growth. Meanwhile, OPEC+’s decision to increase production is not likely to move the supply numbers much.