The corona situation in China has eased in some areas, but the government still sticks to the zero covid strategy. The increase in supply in the market is also putting downward pressure on oil prices.
Oil prices fell on Thursday after two straight days of gains. In the morning, a barrel (159 liters) of North Sea Brent was priced at US$108.05. That was 73 cents less than Wednesday. The price of a barrel of West Texas Intermediate (WTI) fell $1.13 to $103.12.
More recently, the prospect of surging demand for crude oil had buoyed prices after strict coronavirus measures in China’s financial metropolis of Shanghai were eased.
In some residential areas, people can go out of their homes again, but must abide by distancing rules. Other residential areas remain in strict lockdown.
Xi defends tough course
Despite the associated economic damage, Chinese President Xi Jinping is sticking to the strict zero covid course. “We must continue to put people above everything, life above everything,” Xi said Thursday, according to state media. “The current global pandemic is still very serious, we must not lose heart in prevention and control work. Persistence brings victory.”
As the second largest economy in the world, China is one of the most important consumers of oil. In addition, the country’s central bank is likely to take further action to support the declining economy.
Release of oil reserves increases supply
However, there is currently a case for a rising oil supply, which is likely to cause oil prices to fall. US crude oil inventories have risen surprisingly significantly in the last week, as announced on Wednesday.
In addition, the member states of the International Energy Agency have released national oil reserves to mitigate the economic consequences of the Ukraine war. Therefore, the International Energy Agency is lowering its forecast for the price of Brent oil, as the OPEC countries did before.
The IEA had previously assumed there would be a shortage this year. But even in the second half of the year, the market is likely to remain balanced, it is now said. Commerzbank experts write that the US oil reserves that have been released should offset the expected shortfall in oil production in the second half of the year.