More Weekly Losses For Oil As Schizophrenic Traders Resume Worrying About China Lockdown Impact

By contrast, many analysts continue to worry about supply shortages: File Image/Pixabay

Oil prices on Friday declined – and incurred another weekly loss – after it was reported that the China Covid lockdowns have caused a 1.2 million barrel per day (bpd) equivalent drop in fuel demand, which caused traders to yet again worry about overall demand impact.

However, market analysis continues to issue profoundly mixed messages, with at least one notable expert warning once more about tight markets.

West Texas Intermediate on Friday dropped $1.72 to settle at $102.07 per barrel, while Brent fell $1.68 to settle at $106.65 per barrel; the commodity posted a weekly loss of almost 5 percent.

Claudio Galimberti, senior vice president of analysis at Rystad Energy, said in relation to the perception of lower economic activity globally, "Oil demand is set to shed 1.4 million bpd, dropping below the highs set in 2019."

But Morgan Stanley raised its forecasts for Brent crude by $10 for the third and fourth quarters, acknowledging a deficit of about 1 million bpd throughout the year: "Risks to prices are skewed to the upside," the bank said in a note.

Indeed, Amrita Sen, founder and director of research at Energy Aspects, sees a "real risk" in the third quarter of this year due to demand in Asia rising and the waning of sales of the planned U.S. Strategic Petroleum Reserve releases.

She added that "the demand numbers coming out of Asia outside of China are incredibly strong right now," and she noted that it can no longer be assumed – as many observers did up until recently - that the Iran nuclear deal will be revived and the Islamic republic will return to the international market.

Analysts on Friday also ruminated over the impact of the U.S. Federal Reserve warning that it will likely raise interest rates far more aggressively this year – a remark that caused financial markets to tumble overnight.

Yeap Jun Rong, market strategist at IG, said the process to restore price stability without creating a slowdown that amounts to a recession is "going to be very challenging; this seems to highlight the heightened risks of restriction on economic activities brought about by policy tightening and having a soft-landing may be harder than what some may expect."

Meanwhile, the latest development in Europe's attempt to wean itself of Russian energy occurred on Friday with U.S. president Joe Biden and European Commission president Ursula von der Leyen announcing the creation of the joint task force that, among other things, will work to ensure an additional 15 billion cubic metres of liquefied natural gas (LNG) for the European Union in 2022.

The European Commission will in turn work with EU member states to ensure the demand of at least 50 billion cubic metres of U.S. LNG per year (Russia is the world's largest supplier of LNG, to the tune of about 45 percent of the EU's imports last year).