Oil field in Sea of Okhotsk.
Yuri SmityukTASS via Getty Images
- Brent crude rose almost 1% on Tuesday, paring some of the previous day’s losses.
- Saudi Arabia will raise its selling prices for Asian buyers, a sign it is bullish on demand, despite rising Chinese COVID cases.
- COVID cases have caused lockdowns in several major Chinese cities, which risks cutting demand for oil
Oil prices rose on Tuesday, driven in part by Saudi Arabia’s decision to raise its selling prices for Asian buyers, which helped allay some concern about a drop-off in demand in China, where COVID rates are surging.
Brent crude futures rose 0.7% to trade at $110.25 a barrel by late morning in Europe, above a session low of $106.56, while West Texas Intermediate rose 0.3% to trade at about $106.31 a barrel.
Saudi Arabia will raise its official selling prices for Asian customers to record-highs for a second month in a row in April, a sign traders interpret as bullish on the demand outlook.
Meanwhile, Ukraine and Russian delegates meet face-to-face for the first time in two weeks in Istanbul on Tuesday. Foreign Minister, Dmytro Kuleba, publicly stated that the most ambitious goal for Ukraine during this round of negotiations will be a ceasefire agreement.
The oil price has hit 14-year highs this month, as Western sanctions on Russia have prompted traders to avoid the country’s energy exports and prepare for a potential ban, which would strip around 7% off global daily supply. The market has been highly sensitive to any developments in peace talks between the two sides.
The world’s largest oil exporters have been gradually increasing crude output since joint restrictions were put in place during the pandemic. OPEC+, which includes Russia, among others, has so far resisted pressure to step up production more quickly to cool sky-high oil prices.
While oil rose on Tuesday and the market awaits Thursday’s meeting of OPEC+ members, expectations are tapered due to Russia being a member of the group.
“Anxious not to upset the + in OPEC+, Russia, the rhetoric from Saudi Arabia and the UAE suggests little to no chance of increased production above the 400,000 bpd monthly increase previously agreed,” Jeffrey Halley, Senior Markets Analyst at Oanda, wrote.
Elsewhere, China is suffering from its most severe COVID-19 outbreak since the beginning of the pandemic two years ago. As a result of the most recent outbreak China’s financial hub, Shanghai, will begin a two-stage lockdown over nine day, which will reduce demand for fuel.
“China’s COVID lockdowns will provide directional volatility to oil this week. More lockdowns equal lower prices and vice versa,” Jeffrey Halley, senior markets analyst at Oanda, wrote.
The country’s financial hub accounts for almost 4% of China’s oil consumption, analysts at ANZ Research said.
Read more: Goldman Sachs breaks down why spiking oil prices and an economic crash often go hand-in-hand — and shares how a combination of prices doubling and a real-estate bubble caused a recession after the 1990 Gulf War crisis
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