Oil Price Recovery Evaporates As China Considers Increasing Fuel Exports

But Stephen Schork thinks prices will soon bounce back beyond $100: File Image/Pixabay

Less than a day after skittish crude traders staged a modest rally due to China easing its Covid restrictions and reports of market tightness, on Thursday they sent prices plummeting downward yet again, this time due to reports that China is considering more fuel exports – which they fear is a sign of ailing consumption.

Traders were also shaken by the U.S. Department of Energy stating that its plan to replenish the nation's emergency oil supply doesn't include a trigger price and isn't likely to occur until after fiscal 2023.

West Texas Intermediate fell $3.38 to settle at $85.10, while Brent dropped $3.26 to settle at $90.84.

Phil Flynn, senior market analyst at Price Futures Group Inc., regarded Washington's announcement as the greater of the two influences on Thursday's trading, noting that "The White House sending mixed messages on the strategic reserve has pushed this market up and down; they're putting out some trial balloons to see how their buying is going to impact prices."

As for China's news, it comes on the heels of the International Energy Agency forecasting that the country will suffer its biggest drop in oil demand in over 30 years due to its adherence to a zero-tolerance Covid policy.

If trading patterns seem erratic, so too do oil marker time spreads: Brent's prompt spread was $1.23 per barrel in backwardation compared with 90 cents a week ago, while the measure was over $2 last month.

Regardless, Stephen Schork, president of The Schork Group, on Thursday joined the chorus of other analysts in predicting the commodity's rise in the near future: in his case he believed jet fuel and gasoline demand will push crude beyond the $100 range later this year.

Earlier this week, Christyan Malek, global head of energy strategy for JPMorgan Chase & Co., said demand growth was such that oil would reach $150 per barrel, and Morgan Stanley expected that Brent will recover to $125 per barrel by the end of September 2023.

Still, the oil market seems mired in negative sentiment: Edward Moya, senior market analyst at Oanda Corp., mused that "Oil fundamentals are still mostly bearish as China's demand outlook remains a big question mark and as the inflation fighting Fed seems poised to weaken the U.S. economy."

For his part, Indermit Gill, chief economist at World Bank, said his institution had pared back forecasts for three-fourths of all countries and that he was concerned about "generalized stagflation," a period of low growth and high inflation, in the global economy.

This followed the IEA's warning earlier this week that oil demand growth will grind to a halt in the fourth quarter.