Oil Prices Settle Mixed Amid Beijing Lockdown Fears and Tight Supplies, Reports Reuters

By Laura Sanicola

Oil prices exhibited a mixed performance on Thursday, as supply concerns and escalating geopolitical tensions in Europe outweighed fears regarding economic stability amid rising inflation.

Brent crude fell by 6 cents, settling at $107.45 a barrel, while West Texas Intermediate (WTI) crude increased by 42 cents, or 0.4%, closing at $106.13.

"The trading has been thin and nobody knows what’s going to move the needle," stated John Kilduff, a partner at Again Capital LLC in New York.

A potential ban from the European Union on oil imports from Russia, a significant supplier of crude and fuels to the bloc, is expected to tighten global supplies further. The EU continues to negotiate the specifics of the embargo, which requires unanimous consent. However, a vote has been stalled due to Hungary’s opposition, citing economic disruption.

Overall, oil prices and financial markets have faced pressure this week due to concerns about rising interest rates, a significantly strong U.S. dollar, inflation, and the possibility of a recession. Additionally, ongoing COVID-19 lockdowns in China, the world’s largest crude importer, have also affected the market.

"The decline in demand growth comes at a critical time, with Beijing potentially facing lockdowns at any moment," commented Bob Yawger, director of energy futures at Mizuho.

The U.S. Consumer Price Index (CPI) saw an 8.3% increase for the year leading to April, raising concerns about potential aggressive interest rate increases and their implications for economic growth.

"Soaring gasoline prices and slowing economic growth are expected to substantially hinder the recovery of demand through the rest of the year and into 2023," the International Energy Agency (IEA) indicated in its latest monthly report.

The report also noted that "prolonged lockdowns in China are leading to a significant slowdown in the world’s second-largest oil consumer."

The Organization of the Petroleum Exporting Countries (OPEC) has downgraded its forecast for global oil demand growth for the second consecutive month, attributing this revision to the repercussions of Russia’s invasion of Ukraine, rising inflation, and the resurgence of the Omicron variant of COVID-19 in China.

On Wednesday, oil prices surged by 5% following sanctions imposed by Russia on 31 companies from countries that have enacted sanctions against Moscow in response to the invasion of Ukraine. This created a sense of unease in the market, particularly as Russian oil flows to Europe via Ukraine fell by 25%, marking the first disruption of exports through Ukraine since the onset of the invasion.