Prices fall on fears of lower Chinese demand

The price of Brent 1st-nearby fell back to around $116b after ending the week at around $120/b. The main reason for this decline comes from China where the rapid spread of the Covid epidemic will lead the authorities to impose containment measures in Shanghai, in order to carry out a large-scale testing of the population. Although these measures are less restrictive than in the past, they could have a significant impact on demand.

The Yemeni Houthi rebels have also unilaterally declared a 3-day pause in their attacks on Saudi Arabia’s oil facilities. But at the same time, hopes for a quick return of Iranian oil to the market seem to have vanished. In addition to the obvious disruption that the war in Ukraine has brought to the Iranian nuclear negotiations, it is not clear that the Biden Administration is now ready to be accused of laxity on this issue, while the threat of nuclear weapons use has not been so strong for decades. 

Alongside the US and EU gas announcements on Friday, Germany said it was on track to halve its Russian oil imports by June. In reality, they have already fallen by a third, but for logistical reasons the remainder will be very difficult if not impossible to replace quickly, leaving Germany still importing around 300kb/d of Russian crude and almost 100kb/d of diesel. 

OPEC countries are meeting on Thursday and there have been no signs that they will accelerate the pace of their production increases. However, crude oil prices could fall back a little before then.