Crude Oil Drops on Weak Chinese Data; EU Oil Ban Under Consideration

By Peter Nurse

Oil prices experienced a decline on Monday as COVID-19 lockdowns in China, the largest crude importer, continued to negatively impact demand. However, prices remain high due to the European Union’s intention to implement an import ban on Russian crude, which is expected to further disrupt global supply.

As of 8:55 AM ET, futures were down 0.4% at $108.25 per barrel, while the contract dropped to $111.14 per barrel. Meanwhile, U.S. gasoline prices rose 1.5% to $4.0160 per gallon.

On Monday, Shanghai announced its plans to end a lengthy COVID-19 lockdown, which has persisted for over six weeks, and to resume more normal activities by June 1. However, with approximately 46 cities in China under lockdown, the potential for future flare-ups remains a concern under the country’s strict zero-COVID policy.

Recent data indicates significant losses; in April, China’s economic activity shrank by more than 11% compared to the previous year, with the manufacturing sector contracting by 2.9% year-on-year. The impact on the oil market is evident, as refining capacity in the country plummeted by 11% in April, reaching its lowest level since March 2020.

Despite these setbacks, oil prices have increased by over 40% this year, driven by supply worries following Russia’s invasion of Ukraine and the subsequent sanctions imposed on Moscow.

Germany has expressed its commitment to advance an embargo on Russian oil imports, even without unanimous backing from other EU members. The EU’s sixth sanctions package, which aims to halt Russian crude and refined product imports by the year’s end, has faced delays due to resistance from Hungary and several other Central and Eastern European nations.

Analysts at ING noted that Germany has reduced its reliance on Russian oil from about 35% of its total demand before the war to around 12% presently. The country is actively pursuing alternative crude sources to eliminate its dependence on Russian oil entirely.

On the corporate front, Saudi Aramco reported record profits, with net income soaring by 82% to $39.5 billion, a result of high crude prices. This performance has allowed the Saudi oil giant to surpass Apple as the world’s most valuable company.

Additionally, Saudi Arabia aims to increase its oil production capacity by over 1 million barrels per day, targeting a production level exceeding 13 million barrels per day by late 2026 or early 2027, according to Energy Minister Prince Abdulaziz bin Salman.