Crude Oil Remains Mostly Stable as Traders Look for New Impetus

By Peter Nurse

Oil prices remained relatively steady on Friday, poised to conclude the week almost unchanged as traders weighed cautious optimism about the lifting of Shanghai’s COVID-19 lockdown against concerns surrounding the global demand outlook.

As of 9:25 AM ET, oil futures were up by 0.1% at $109.92 a barrel, while the Brent contract also saw a slight increase of 0.1%, reaching $112.09 a barrel. In the U.S., gasoline prices rose by 0.4%, reaching $3.8470 a gallon.

Oil has experienced a remarkable surge of over 40% this year, driven by recovering demand following the pandemic and geopolitical tensions arising from Russia’s invasion of Ukraine, which have destabilized global markets.

However, confidence in economic recovery has diminished in recent weeks due to soaring inflation prompting central banks to tighten monetary policy. Additionally, several Chinese cities, notably Shanghai, have implemented lockdowns to combat ongoing COVID outbreaks.

Authorities began easing restrictions in Shanghai earlier this week following three consecutive days of no community transmissions; nonetheless, many limitations are still in effect, and a significant portion of the city’s residents remain confined to their homes.

On a positive note, robust demand for fuel products has been observed, particularly in the U.S., where gasoline and diesel prices have reached record highs ahead of the summer driving season. According to recent data from the Federal Highway Administration, driving activity in March hit 277.4 billion miles—5 billion miles more than in March 2019, prior to pandemic restrictions.

Another crucial factor influencing the market is the anticipation surrounding the European Union’s potential agreement to ban the importation of Russian crude oil, despite resistance from member states most reliant on Russian oil, such as Hungary.

Analysts at ING noted that while reaching a consensus is taking longer than anticipated, they believe member states will ultimately forge a deal. The impact on the market will largely depend on the extent to which the final agreement aligns with the initial proposals.

Even if a viable proposal emerges, uncertainty lingers over the actual reduction of Russian oil on the global market, as China appears to be increasing its purchases of discounted Russian crude. Estimates from Vortexa Analytics predict that China’s seaborne imports of Russian oil could surge to near-record levels of 1.1 million barrels per day in May, a significant increase from the 750,000 barrels per day seen in the first quarter.

Additionally, the number of U.S. oil rigs in operation is expected to be reported later in the session, wrapping up the week’s market developments.