A Positive Week for Oil as Optimism Mounts for Chinese Economic Opening

By: Harry Altham, Energy Analyst, Market Analysis EMEA & Asia

Fri, 16 Dec 2022, 11:31

A Positive Week for Oil as Optimism Mounts for Chinese Economic Opening

Harry Altham

Energy Analyst, EMEA & Asia

Though oil futures have started the day lower across the curve, both Brent and WTI are set for a weekly gain as hopes rise of a lasting economic recovery in China and with increasingly tight supplies coming out of Russia. ESPO crude is currently trading $6 above the $60 price cap set by the European Union, meaning that Russia is having to draw up bilateral insurance contracts with purchasers and arrange its own shipping, and this is causing a slowdown in exports from the Far Eastern port at Kozmino (at 440k bbd, Bloomberg ship-tracking data suggests this has fallen by 50% m/m).

Urals crude has largely remained beneath the $60/bbl mark since the imposition of the price cap, and this has has resulted in relatively stable flows out of Baltic and Black Sea ports – but the signs are there that a price rise will have a considerable impact on flows from these regions as well. Russia has repeatedly stated that it is prepared for a fall in exports due to its unwillingness to trade at the price cap. Our view is that the price cap will place downward pressure on Russian grades’ discount to oil benchmarks, but the tightness in global supplies will mandate robust demand from China, India and Turkey – likely causing periods of constrained trade as Russian grades fluctuate above the key $60 threshold.

Urals Crude versus dated Brent (M1). Source: Bloomberg

europe not over the inflation hill

Christine Lagarde’s comments yesterday warned of further inflationary pressures in early 2023, which threatens to curtail wider energy demand across the continent. That said, we don’t expect gasoil consumption to suffer, primarily due to scarcities and related energy security issues. The ECB raised benchmark interest rates by 50bps to a 2% target rate, following similar moves by the Federal Reserve and the Bank of England. Though rising food and energy costs are a global issue, they are the key driver of European inflation (whereas supply chain dislocation and an overheated economy are at the core of U.S. inflation). Part of the ECB President’s hawkishness stems from widespread concerns of a new bout of commodity-driven price pressure in the new year, to which Europe is particularly vulnerable given the continent’s prior dependence on Russia. Though this is expected to weaken oil demand growth, we still expect a y/y increase in consumption due to the high cost of alternatives (namely natural gas, which is vulnerable to pressure in the LNG market that could arise with the economic reopening of China).

IEA SEES SUPPLY AS OUTPACING DEMAND

In its latest monthly report, the International Energy Agency (IEA) has stated that it believes oil supply outpaced demand by 900k bbd during the month of November. This concern was shared by OPEC in their quarterly forecast, where the group warned of fragile demand extending into early next year. However, those estimates do not tell a complete picture. In crude markets, we must remind ourselves that there are vast shifts in the flow of oil from source to consumer. Political turmoil is disrupting the efficiency of those flows; demand for Middle Eastern oil is now strong in both Europe and Asia, while Russian oil (for example) struggles to find buyers. To that end, the IEA believes Russian production will fall by 1.8M bbd by the end of Q1 once the sanctions on oil products have had their full effect (this falls within our forecasted range of 2M – 2.2M bbd less production than January 2022). As we have reported previously, apart from the difficulty in finding sufficient new buyers for Russia’s crude, there remains the issue of finding enough transport vessels under the terms of the oil price cap set by the European Union, which doesn’t look set to ease until later in 2023.

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Perspective: Morning Commentary for August 11

August 11 – It was generally a quiet night for the markets until early this morning when a headline hit that Iran and Oman were close to reaching a deal. Stock futures rallied, while the dollar index followed Treasury yields lower, along with active selling in the energy- and food-based commodities. The headline had limited impact though in a world that has become skeptical of promises of peace. Stock futures remain steady to firmer at this hour, while the VIX trades near 16 – just above 2026 lows. The dollar index is trading near 99.8 this morning, after recovering from its early morning selloff over the following hour of trade. Yields on 10-year Treasuries are trading near 4.69%, while yields on 2-year Treasuries trade near 4.22%. WTI crude oil is trading near $82 per barrel at this hour, while Brent trades near $88. The grain and oilseed markets are mostly weaker, after failing to recover from this morning’s early selloff that started in the crude oil market.

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Perspective: Morning Commentary for August 10

August 10 – The world commodity markets and economy remains at risk amid two wars this morning. Tensions continue to escalate in both the Middle East and the Black Sea – risking pulling other countries into the conflicts. Stocks are down modestly this morning as we start a week of trade in which we’ll see key inflation and retail sales data following a weak jobs report this past Friday. Yet, stocks continue to trade just below record high levels, with the VIX trading near 2026 lows just above 15. The dollar index is trading near 99.7. Yields on 10-year Treasuries are trading near 4.68%, while yields on 2-year Treasuries are trading near 4.23%. The energy and food-based markets are firmer today amid the escalated risks. WTI crude oil is trading near $80, while Brent trades near $85 per barrel. Double-digit gains in the winter wheat markets lead the way for higher grain and oilseed prices.

Arlan SudermanMon, 10 Aug 2026, 13:51

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WTI and Brent Crude Are Now Reading the Strait of Hormuz Differently

WTI and Brent crude are moving to different beats as a possible U.S. Iran deal reshapes the oil market. The two benchmarks are pricing Strait of Hormuz risk in their own ways, and the gap between them says a lot about where crude goes next.

Editorial TeamFri, 07 Aug 2026, 15:40

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A Positive Week for Oil as Optimism Mounts for Chinese Economic Opening

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