Energy
Commodity markets couldn’t escape the broader risk-off move yesterday. Markets are concerned over the impact of Covid lockdowns in China, recession risk and rising rates. ICE Brent fell by more than 5.7%, settling below US$106/bbl and taking the market well below the 50-day moving average. A stronger USD would also not have helped oil and the broader commodities complex.
EU members are struggling to come to a decision on a Russian oil ban. Hungary continues to block the proposed ban. The European Commission President visited Hungary yesterday with hopes of reaching an agreement, but little progress seems to have been made. In addition, according to the Wall Street Journal, Slovakia, the Czech Republic, Bulgaria and Croatia would approve the ban subject to them receiving assistance from Brussels. The failure of the EU to come to a quick unanimous decision would have also likely weighed on the market yesterday. It looks as if the latest sanction package will need to be watered down in order to be approved by all members. Already, there are reports that the EU has dropped part of the proposal which would have banned EU-owned tankers from shipping Russian oil to destinations outside the EU.
The latest trade data from China shows that despite the hit we have seen in domestic demand due to Covid lockdowns, crude oil imports over April increased 4.1% MoM to average 10.52MMbbls/d, whilst imports were also up 6.7% YoY. However, cumulative imports so far this year are still down by around 4% YoY. We will have to wait until later this month for more detailed trade data to see where this increase in April flows originated from. Russian oil flows to China could have increased over the month, given the larger discounts that we have seen for Russian crude since the war.
Later today the EIA will release its Short Term Energy Outlook, which will include its latest estimates for US oil production. Last month, US oil production over 2022 was forecast to grow by 833Mbbls/d YoY to 12.01MMbbls/d, whilst 2023 output was forecast to grow by 944Mbbls/d YoY to average 12.95MMbbls/d.
