Oil prices fall for the 3rd week in a row due to reduced demand from China

Amid the spread of covid-19 in China, oil prices are falling for the third week in a row, having fallen by 20% in that period. In addition, the market expects new price and trade restrictions for Russian oil.

In many cities of China, there were protests against the strengthening of quarantine restrictions, which immediately affected the world markets.

January futures for Brent oil last week fell by 5% to $83.6/barrel (-12.4% for the month), and for WTI oil – by 4.8% to $76.2/barrel (- 13.5% for the month), and continued to fall over the weekend.

The market is being pressured by a decrease in energy demand from China, where a record 31,987 cases of Covid were recorded on Thursday. The possible introduction of long-term quarantines will slow down economic development and reduce energy demand. According to Nomura, quarantine restrictions already cover 20% of China’s economy, while this figure was 15.6% last Monday.

Markets are also expecting a ban on Russian oil imports into the EU and price cap restrictions due to come into effect on December 5, but G7 and EU diplomats failed to agree on a price cap last week. The head of the European Commission, Ursula von der Leyen, believes that such a decision will reduce oil imports from the Russian Federation to the EU by 90% by the end of the year.

At the end of September, the income of the Russian Federation from oil exports fell to the lowest level this year – $15.3 billion. In addition, oil production has decreased and 90% of the EU market has been lost, which reduces Russia’s ability to wage war against Ukraine.

Traders are waiting for the next meeting of OPEC+, which will be held on December 4. Saudi Arabia abandoned the idea of increasing oil production by OPEC countries, and the country’s energy minister said that “the current production cut of 2 million barrels/day will continue until the end of 2023.”

Low oil prices are weighing on prices for corn, soybeans, canola and palm oil, which are used in biodiesel production. This is also the goal of developed countries trying to reduce inflation caused by the rise in oil and food prices after the start of the war in Ukraine.

Tags: prices