Weaker Chinese Demand Outlook Slashes Oil Prices by 6%

By Adedapo Adesanya

Oil prices were down on Monday as the Chinese demand outlook was low amid continuous lockdowns, causing the Brent crude to drop 6.17 per cent or $6.93 to $105.50 per barrel, with the West Texas Intermediate (WTI) trading lower by 6.46 per cent or $7.09 to $102.70 per barrel.

China’s latest series of lockdowns have had the whole business world worried about the future with many companies in China cutting their 2022 growth projections.

Analysts also noted that business sentiment among Chinese businesses also suffered from the lockdowns as crude imports by China in the first four months of 2022 fell by 4.8 per cent year-on-year, though April imports were up nearly 7 per cent.

Also, oil benchmarks were pressured as the US Dollar climbed to a two-decade high after the Federal Reserve raised interest rates by 50 basis points last week, hitting currencies worldwide.

A stronger greenback makes high-yielding but riskier assets like oil less attractive to investors.

In addition to the China situation, it is not making the market focus on bullish factors like tight global supply, the war in Ukraine and the unwillingness and inability of the Organisation of the Petroleum Exporting Countries and its allies (OPEC+) to boost production.

For Saudi Arabia, it has had to cut down the price for its Super Light for Asia by more than $5 per barrel and the price for its Extra Light by $4.95 per barrel for June deliveries.

The largest OPEC Exporter alongside the United Arab Emirates (UAE) are the only members with the capability to boost production but with higher prices, they are choosing to watch how things play out.

Last week, the European Commission proposed a phased embargo on Russian oil, boosting Brent and WTI prices for the second straight week. The proposal needs a unanimous vote by EU members this week to pass.

The commission is considering offering landlocked Eastern European Union states more money to upgrade oil infrastructure in a bid to convince them to agree.

If agreed, the market could lose about 3 billion barrels per day of crude from one of the largest suppliers of crude to the global market.