Oil Prices Drop After Last Week’s 5% Jump

Oil prices advanced 5% to $121 a barrel last Wednesday in response to pipeline disruption and Biden’s emergency meeting with NATO. US WTI settled at $115 per barrel on the day.

The spike is temporary. Oil prices fell more than 2% on Friday when part of that pipeline reportedly resumed operation and after the European Union’s foreign ministers were split on imposing oil sanctions on Russia. This week, as China’s financial hub Shanghai announced a city-wide lockdown, oil prices came under pressure again.

Shanghai’s Abrupt Lockdown

On Monday, Shanghai launched a two-stage Covid lockdown of its 26 million residents in an effort to curb a recent COVID outbreak. The current phase is targeted at the eastern part of the city and will end on Friday morning. The second stage of the lockdown will run from Friday morning to Apr 5. The city suspended all public transit and ride-hailing so far.

The scale of the lockdown is the biggest in two years. Investors are worried about a potential dive in oil demand since China is the world’s largest oil importer. US WTI fell more than 8% at one point on Monday.

A Major Disruption And NATO’s Meeting

A major storm disrupted crude oil exports from Kazakhstan’s CPC terminal last week. Two of the three loading facilities at the site were damaged. The remaining facility was still functioning but it paused its operation temporarily due to bad weather. Stay tuned to the latest financial news

Russian officials said oil supplies by the CPC could potentially be halted completely for two months. The CPC pipeline currently accounts for 1.2% of world oil demand. Despite the Biden administration’s sanctions on Russian oil, this pipeline remains uninterrupted. The majority of the oil is owned by Russia, Kazakhstan and international oil firms.

On the same day, US President Joe Biden arrived in Brussels where he was going to meet with NATO, the G-7 and the European Union. They planned to discuss further sanctions against Russian exports and look for ways to reduce the European Union’s reliance on energy exports from Russia. Currently, oil exports from Russia account for a third of the EU’s overall consumption.

The heightened uncertainty of both events led to a 5% increase in oil price last Wednesday. Yet, the spike was short-lived. A day later, several sources revealed that the CPC pipeline partially resumed operations, easing investors’ anxiety over supply concerns. Meanwhile, no consensus was achieved over the European Union’s potential sanctions on Russian crude and petroleum product imports. While some member states supported an oil ban, some such as Germany and Hungary held their stance that energy should be off the sanction list.

“To do so (impose the sanctions) from one day to the next would mean plunging our country and all of Europe into recession,” German Chancellor Olaf Scholz previously stated.

These updates drove oil prices lower. Brent futures dropped 2.1%, while US WTI dropped 2.3% at the end of last Friday.

Bullish Oil Outlook

Commenting on the recent oil spike, Andrew Lipow, President of Lipow Oil Associates, said, “There’s a growing consensus that the de facto ban on Russian oil purchases has resulted in a supply disruption of 2 to 3 million barrels a day, and until the world can figure out how to replace that oil we’re going to march on higher until demand destruction takes place.”

Oil has rallied over 50% in 2022 so far, the highest level since 2008. Due to an increase in oil demand and a decrease in oil supply, the EIA predicted that Brent crude oil prices and US WTI could average $83 and $79 per barrel respectively this year. Check the latest oil price here

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This article is prepared by Lucia Han from Mitrade and is for reference only. We do not represent that the material provided here is accurate, current or complete. The article content neither takes into account your personal investment objects nor your financial situation, and therefore it should not be relied upon as such. You should seek for your own advice.