By Adedapo Adesanya
Crude oil prices came under pressure on Tuesday as the lockdown in China continues to weigh on the market despite the latest signal that the European Union (EU) is preparing to impose an embargo on Russian oil imports.
China’s stringent measures to curb COVID-19 threatened a further hit to economic activity and fuel demand, causing the Brent crude to drop 1.6 per cent or $1.72 to sell at $105.90 per barrel just as West Texas Intermediate (WTI) crude declined by a 1.71 per cent or $1.80 to $103.40 a barrel.
The country’s growth concerns are a key driver, coming on top of general risk-averse sentiment and signs that high fuel prices are already causing demand destruction.
The capital city of Beijing closed gyms and cinemas over the holiday that lasts through Wednesday, and Shanghai will keep virus measures in place.
Meanwhile, the EU is set to propose a ban on Russian imports by the end of the year, with restrictions on shipments introduced gradually until then. The bloc is considering a sixth round of sanctions against Russia that could include the nation’s energy complex.
While Germany said it could end its dependence on Russia by summer, Hungary signalled it would veto any sanctions on Russian energy.
Germany’s Economy Minister, Mr Robert Habeck said that his country was ready to support an immediate oil embargo as well as a more gradual phase-out of Russian oil imports.
“Germany is not against an oil ban on Russia. Of course, it is a heavy load to bear but we would be ready to do that,” Mr Habeck said.
The official also admitted the EU will suffer consequences from its sanction action.
“It’s inconceivable that sanctions won’t have consequences for our own economy and for prices in our countries.
“We as Europeans are prepared to bear [the economic strain] in order to help Ukraine. But there’s no way this won’t come at a cost to us,” Mr Habeck added.
In further bullish news, the US is expected to report another decline in crude oil inventories, with the median forecast for a 1.2 million barrels draw.
This would add to already substantial declines in crude oil and fuel inventories. In crude, inventories have shed a cumulative 421 million barrels since July last year.
While this is happening, the Organisation of the Petroleum Exporting Countries (OPEC) recorded almost no increase in production last month, with analysts expecting the cartel to report a modest 40,000 barrels per day monthly increase from March compared with the 250,000 barrels per day in monthly increases agreed by the OPEC+ members two years ago.
Modupe Gbadeyanka