Brent futures lose ground as Covid cases rise in China
Front-month ICE Brent has declined by $0.93/bbl on the day, to $81.91/bbl at 09.00 GMT, but Brent futures are on track to gain over 3% on the week. The trading volume for Brent futures is expected to be muted next week as traders head out for the holidays.
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Upward pressure:
Reuters has reported that “Russia may cut oil output by 5-7% in early 2023 as it responds to price caps on its crude and oil products by halting sales to the countries that support them,” citing Russia’s Deputy Prime Minister Alexander Novak.
Novak estimates the cut at 500,000-700,000 b/d, according to Reuters. In the first quarter of next year, the Dutch financier ING expects Russian oil supplies to fall by around 1.6-1.8 million b/d.
Meanwhile, Russian state news agency TASS has reported that Russia’s President Vladimir Putin will sign a decree halting supplies to G7 price cap participants next week as part of “precautionary measures.”
“A combination of lower Russian oil supply and OPEC+ supply cuts means that the global oil market is expected to tighten [oil market] over 2023,” writes ING as it forecasts Brent to average $104/bbl next year.
Winter storm warnings, coupled with a drawdown in US crude stockpiles and the closure of the Keystone Pipeline, have also supported Brent prices. CMC analyst Leon Li tells Reuters that heating oil demand is expected to skyrocket. This is because winter storms in the US will result in cold temperatures extending into Texas, Florida, and eastern states.
Downward pressure:
Fitch Ratings' global economic outlook says that monetary tightening will have a broader impact on demand over time, though the effects on the economy are already visible.
“Recessions are anticipated in the eurozone and the UK starting in late 2022, and in the US in the second and third quarter of next year,” it adds.
In addition, a spike in Covid cases in China and reports of a new variant have once again placed China’s demand concerns at the forefront of oil markets.
By Konica Bhatt
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