China is the world's second-largest consumer of crude oil and the world’s top importer of the commodity. In the face of adversity, is its economy likely to slow down?
Crude oil prices ended slightly higher yesterday after a volatile session, caught between weakening demand in China and the prospect, closer than ever, of a European embargo on Russian oil imports.
In the economic capital of Shanghai, where more than 25 million inhabitants have been locked up for a month, anyone who tests positive for coronavirus is sent to a quarantine center, even if they are asymptomatic. Apparently, China is sticking to this “zero-COVID” policy that, ironically, has even become a new standard of freedom as similar restrictive models that run counter to individual freedoms were followed by some countries, including Australia, Canada and New Zealand not so long ago.
On the other hand, several countries, including Hungary, Denmark, France, the United States and Britain, have recently announced they are moving their embassies back to Kyiv as the security situation in the Ukrainian capital improves.
As Hungary will not support sanctions on Russian oil and gas shipments, Slovakia says it will seek exemption from any EU embargo on Russian oil. Therefore, the EU executive committee could spare both Slovakia and Hungary an embargo on buying Russian oil, taking into account the dependence of both countries on Russian crude.
Speaking of Russian imports, it can also be noted that in 2021, Russia supplied Europeans with 30% of crude oil and 15% of petroleum products.
Meanwhile, the 12 members of the Organization of the Petroleum Exporting Countries (OPEC), led by Riyadh, and their 10 partners, led by Moscow (OPEC+), are going to meet on Thursday, May 5, by videoconference to make any adjustments to their production.
The market does not expect much from this meeting, as the current target of 400,000 barrels per day should be sustained. It’s despite the cartel’s struggling to pump such volumes, notably given the current political crisis in Libya – the producing country endowed with the most abundant reserves in Africa – which has seen its oil infrastructure blocked, where oil operations have been stopped since mid-April.
Regarding the U.S. dollar, the safe-heaven currency – still the king of international trade – remains strong, with a dixie hovering around its highs in a range marked between 102.750 and 103.930.
The latter remains a strong resistance to break out before we see further moves towards the upside.
Charts
Figure 1 – U.S. Dollar Currency Index (daily chart).
Figure 2 – WTI Crude Oil (CLM22) Futures (June 2022 contract, daily chart).
Figure 3 – RBOB Gasoline (RBM22) Futures (June 2022 contract, daily chart).
Figure 4 – Henry Hub Natural Gas (NGM22) Futures (June 2022 contract, daily chart).