Oil Prices Hit Two-Month High as China Eases Lockdowns

Oil prices rose to their highest in more than two months on Monday, as China is expected to emerge after the Covid-19 shutdown.

A fresh attempt by European Union leaders to strike an agreement banning most Russian oil imports has added to the upside momentum. Heading towards the summit in Brussels, German Chancellor Olaf Scholz said he was confident the bloc would find a consensus on the ban – although other European leaders were more cautious about the chances of a deal. going to happen.

The dual outlook of increased oil demand in Asia and limited supply from Russia pushed benchmark Brent crude up 1.2% to $116.96 a barrel. That was their highest level since late March. Since then, the drop in fuel consumption in China has been rectified global demand and pulled crude oil prices down from their 2022 highs of around $139 per barrel.

Tamas Varga, an analyst at brokerage PVM Oil Associates, said: “If you do the lifting of restrictions in Shanghai… all of a sudden, the demand side of the equation looks more attractive than it did before. a week”.

Paul Horsnell, head of commodity research at Standard Chartered,

said the Covid-19 shutdown reduced China’s oil demand by about 1.2 million bpd in May. With the shutdowns easing, much of that is likely to return, bringing China’s consumption to nearly 16 million bpd, Mr. Horsnell said. The world consumes about 100 million barrels per day.

The rise in Brent has put oil prices on track for a 7.9% gain in May, which would be the biggest one-month gain since February, the month Russia invaded Ukraine. Trading in West Texas Intermediate Futures, the US crude benchmark, was closed for Memorial Day on Monday.

The recovery in oil prices risks increasing inflation in the US and elsewhere, maintaining interest rate hike pressure on central banks. Gasoline and diesel prices have spiked to record highs in the US in recent weeks, just as motorists gear up for the summer driving season.

According to auto club AAA, the average US gas price is at an all-time high of $4,619 per gallon, up from $3,045 a year ago.

Inflation figures released in Europe on Monday showed consumer price growth in Germany increased at the fastest pace since 1973 this month. That was driven in part by a 38% year-over-year increase in energy prices.

The main factor behind the hike in road fuel prices is a lack of spare capacity at refineries to convert crude into gasoline and refined products, analysts and energy executives say. other regime. However, rising crude oil prices often lead to higher prices at the pump within weeks, as refineries pass on their key input costs to consumers.

The emergence of China from the shutdown could boost oil demand at a time when supplies of some fuels are dwindling globally. Over the weekend, Shanghai Vice Mayor Wu Qing said authorities would relax conditions so that companies could reopen this week.

The city government also launched a 50-point plan to accelerate the economic recovery. Measures include tax cuts for businesses and subsidies to buy electric vehicles.

The EU’s ban on Russian oil, the subject of lengthy negotiations in recent weeks, will further strain global supplies. After tweaks designed to win over Hungary, which buys most of its crude via pipeline from Russia and opposes the ban, plans now focus on stopping imports by boat. Sanctions, as proposed at Monday’s summit, would allow Russian oil to continue flowing to Europe through pipelines.

Even with an exemption for pipeline imports, the EU ban would deal a blow to Russia’s ability to monetize prize goods. As of 2020, about three-quarters of the 2.8 million barrels of crude oil Russia exports to Europe have already been on board, according to Bruegel, a consultancy.

Germany, which imports Russian oil through the northern branch of the Druzhba pipeline, has committed to replacing that crude with alternative supplies. For Russia, this leaves Hungary, the Czech Republic and Slovakia, which import just 250,000 barrels of oil a day through the pipeline’s southern branch, according to the International Energy Agency.

Kristine Petrosyan, an analyst with the IEA, said Russia will struggle to redirect all the oil that has flowed to Europe in boats to buyers in Asia. “I don’t think they can reallocate everything,” she said, adding that the trip from Russia’s Baltic seaports to China took about 60 days., much longer than the run time to the refineries in Europe.

Write to Joe Wallace at joe.wallace@wsj.com

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https://www.wsj.com/articles/oil-prices-hit-two-month-high-as-china-eases-lockdowns-11653933068?mod=rss_markets_main Oil Prices Hit Two-Month High as China Eases Lockdowns

Edmund DeMarche

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