Oil: $115 is approaching, renewed optimism on China

Posted 17 May, 2022

Oil prices rose on Monday, back to their highest in almost two months, in hopes of a recovery in Chinese demand thanks to the improvement in the health situation in Shanghai and the gradual lifting of restrictions. restriction measures announced by the Chinese authorities.

On Monday evening, a barrel of American light crude oil WTI (June futures contract), jumped 3.4% to $114.20 on the Nymex, while Brent North Sea crude rose 2.8% at $114.24, the highest since March 23.

Last week, prices took a break, with WTI gaining 0.6% and Brent falling 0.7% over 5 sessions. Since the start of the year, WTI has jumped more than 50% and Brent more than 45%. The prices of the two varieties of oil had even exceeded $120 a barrel in early March, shortly after the start of the Russian attack against Ukraine, initiated on February 24, before falling back below $100 in early April, then rebounding.

Crude prices remain torn between two opposing forces, on the one hand, a slowdown in demand due to a less dynamic economy, and on the other hand, the fear of a drop in supply linked to a European embargo on Russian oil, which has been under discussion for several weeks within the EU. Without waiting for this embargo, many oil traders have taken steps to do without Russian crude, while Moscow is trying to find new outlets, particularly in India.

Shanghai prepares for the gradual lifting of its containment measures

On the Covid front, the Shanghai authorities announced on Monday that health restrictions would be lifted in stages from May 21, after six weeks of strict confinement in the Chinese economic capital, which has weighed heavily on the Chinese economy. In April, retail sales fell by 11.1% over one year in China, while industrial production fell by 2.9%.

"From June 1 and until the end of June, provided that the risks of a rebound in infections remain under control (...) we will normalize management and restore production and life in the city to their normal level" Shanghai Deputy Mayor Zong Ming was quoted by the 'Guardian' newspaper as saying on Monday.

It should be noted that the price difference between the barrels of WTI and Brent, the two main world references (American and European) of crude oil has narrowed significantly since the start of the Ukrainian conflict, falling to less than $1 since the week. last. This situation can be explained in particular by the sharp drop in US stocks in recent weeks, particularly at Cushing in Oklahoma, the main storage site for WTI.

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17 May, 2022 09:12

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