Oil Suffers Back to Back Weekly Loss on SPR Sales and China Lockdowns

Oil retreated for a second week in the wake of plans for massive stockpile releases, a demand-sapping virus outbreak in China and a hawkish turn from the U.S. Federal Reserve. 

West Texas Intermediate fell 1% this week, with the U.S. benchmark giving back most of its gains since Russia invaded Ukraine in late February. Oil rallied to the highest level since 2008 after the conflict started, prompting the U.S. and U.K. to ban Russian oil imports and adding pressure to global buyers to shun the country’s energy exports. 

The selloff comes after the U.S. and its allies announced plans to unleash a wave of oil from strategic reserves to ease surging fuel costs. The U.S. central bank outlined plans to raise interest rates and curb its balance sheet in an effort to tame inflation, which could restrain growth.

Crude prices were also hampered after China ordered a series of lockdowns in key urban centers, including Shanghai, to quell a coronavirus outbreak. At the same time, plans by the Fed for an aggressive tightening of U.S. monetary policy to combat inflation have blunted demand for risk assets and boosted the dollar.

The move to sell almost a quarter-of-a-billion barrels from strategic petroleum reserves prompted a collapse in once-elevated time spreads.

Prices:

  • West Texas Intermediate for May delivery rose $2.23 to settle at $98.26 a barrel in New York
  • Brent for June settlement rose $2.20 to settle at $102.78 a barrel.

While many Western companies are shunning Russian oil following the invasion, there are plenty of willing takers in Asia, especially in China and India. Cargoes of Russian Sokol crude from the Far East have sold out for next month.

China’s latest coronavirus outbreak shows no sign of abating, disrupting Asia’s largest economy. Cities are facing severe restrictions, which are curbing mobility and energy consumption.


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