Oil Mixed On Covid Fears, As Market Increasingly "Pushed In Two Directions"

by Ship & Bunker News Team
Monday July 11, 2022

With a zero Covid infection tolerance policy in China virtually guaranteeing that economic uncertainty will always cloud that country, crude prices on Monday were mixed on the news that 69 new Covid cases had been reported on Sunday in Shanghai.

West Texas Intermediate fell 70 cents to settle at $104.09 per barrel, while Brent rose 8 cents to settle at $107.10 per barrel.

Rebecca Babin, senior energy trader at CIBC Private Wealth Management, said "Sentiment remains sour," and she added that "CFTC data released Friday showed positioning was the least bullish in more than two years, highlighting the lack of conviction in holding commodity longs into an economic uncertainty."

Analysts at EBW Analytics stated in a note, "The oil market is being pulled in two directions, with exceedingly tight physical fundamentals set against forward-looking demand concerns and signs of price-induced demand destruction."

On the supply side, concerns of last week vanished on Monday when a court in Russia's Krasnodar region cancelled an order to suspend shipments from the CPC terminal (which accommodates Chevron-led Tengizchevroil's production operations) on the Black Sea coast; the terminal is due to ship 1.2 million barrels per day this month.

A lower court in Novorossiysk last week instructed the terminal to suspend shipments due to alleged violations of an oil-spill prevention plan.

Meanwhile, Russia continues to generate enough cash from oil to sustain its hostilities in Ukraine, despite much ballyhooed sanctions from the West: according to Bloomberg, an increase in the rate of export duty charged on crude oil shipped out of Russia in July helped the former Soviet Union withstand a slump in flows in the first full week of the month; duty rates increased by 23 percent between June and July, delivering an additional $1.42 per barrel on every cargo shipped out of the country.

The news agency stated, "That boost helped Russia shrug off a 15 percent drop in crude shipments in the week to July 8, with revenues edging down by just $3 million, or 2 percent."

Still, U.S. energy secretary Jennifer Granholm told media on Monday that Washington will use talks with nations including India and Japan to generate support for a proposed price cap on Russian oil, a scheme critics say will merely cause Moscow to retaliate by severing all deliveries of oil to clients in Europe.

Granholm said, "We want to put on the table the option of joining a buyers' group that will have greater market power to be able to lower the price, and therefore lower the price of Russian oil and lower the profits to Putin."

Granholm added that her administration is examining proposals from oil producers aimed at lowering gasoline prices; options include exempting gas from anti-smog rules that require low-volatility fuel during the summer, and providing waivers that would enable non-U.S. flagged ships to serve refineries in the northeast.