WTI, China, Shanghai, Covid, Russia, Sanctions – talking points
- WTI and Brent crude prices fell more than 8% overnight due to the closing of Shanghai
- Negotiating differences between Ukraine and Russia have increased amid the military stalemate
- Prices are likely to recover once the lockdown ends in China as Russian oil is still shunned from the market
West Texas Intermediate and Brent crude prices fell more than 8% overnight after Shanghai, China’s main financial hub, began a two-phase shutdown on Monday due to a spike in Covid-19 cases. The city east of Huangpu River forms the first phase while the area west of the river forms the second phase, which is expected to start on April 1. The move came as a surprise to the markets, as city officials deny speculation of a widespread shutdown. late on Saturday. Beijing may have influenced this decision as China tries to stick to its “zero COVID” policy.
However, oil prices remained high during the month, buoyed by Western sanctions against Russia which has The global show was affected. While many European countries have abandoned targeting Russian oil importsThe United States banned they. This, along with except The main banks of the global messaging system SWIFT to cut big Participate Russian-source barrels of oil from the world market. It is said that China is accommodating some of the displaced Russians Produce At a steep discount of $20-30 per barrel, according to various sources.
While the shutdown in China affected prices, the downtrend may not continue. Negotiations between Ukraine and Russia have not been very successful, but the prospects for a ceasefire have increased in recent weeks amid the military stalemate. However, Western sanctions are likely to persist even with a ceasefire or a broader agreement, at least in the near term. It is also likely that there will be a lot of permanent business liquidations. This could force Russia to stop pumping oil to many of its wells in the coming months.
That would risk long-term damage to global energy markets, as cutting wells permanently damages their ability to produce oil. Moreover, most Russian oil fields still use Soviet oil technology, hampering the country’s ability to restore as much production as possible. If that happens, it could dampen global supplies for good, which could effectively put a long-term tailwind behind oil prices.
With that said, the current downturn may not continue once markets begin to outgrow the current situation in China. It is also important to keep in mind that China remains committed to strict Covid containment measures. That leaves the door open for more closures if the virus outbreak spreads to other major cities.
Technical Outlook for West Texas Intermediate Crude Oil
West Texas Intermediate Prices fell below the psychological level of 110 but stopped reaching the high-level 100 mark. A slight bounce early Tuesday saw APAC trading up just over 1%, but the bulls may want to reclaim the 110 level before pressing the buy button with confidence. The 20-day simple moving average (SMA) below this level may offer some resistance. Alternatively, a resumption of the downtrend would bring focus to the 50-day SMA and trendline support from the December swing low.
West Texas Intermediate crude oil daily chart
The graph was created using TradingView
— By Thomas Westwater, Analyst for DailyFX.com
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