Covid wave in China triggered oil prices drop

Oil prices plunged yesterday, before recovering somewhat, in line with the US stock market: the ICE Brent front month fell to $99.5/b, before rebounding to $102.32/b at the end of the day (-4.1%). It is trading around $103/b this morning. The NYMEX WTI front month fell by 3.5% to end the day at $98.54/b.

The fears of economic slowdown and the stronger USD that would result from the incoming interest rates hike in the US continued to push the market down. As well as new developments regarding the Covid-19 outbreak in China: in Shanghai authorities are working  to strengthen restrictions in areas where the virus is more prevalent, in Beijing where a massive wave is feared as virus may have spread under the radar authorities ordered inhabitants to test massively. Nevertheless, looking at China as a whole the number of cases is decreasing.

However the market was slightly supported by the peace talks between Ukraine and Russia, as intelligence reports that President Putin is now looking to take as much Ukrainian territory as possible instead of looking for a diplomatic solution.

Analysts polled by Reuters forecast the US crude inventories will have increased by 2.2Mb last week, the API weekly report on this matter will be released tonight.

In this context speculators are leaving the market: the open interest in WTI futures quoted on NYMEX is at the lowest level since July 2016 and long speculative positions measure in the US by the CFTC is at the lowest since April 2020.