Oil Prices Recover Earlier Loses, Here is Why
Oil prices gained on Thursday, rebounding from early losses, on expectations that planned relaxations in Shanghai would boost demand. However, persisting concerns about tight global supply outweighed fears of slowing economic growth.
At 0700 GMT, Brent oil futures were up $1.32, or 1.2 percent, at $110.43 a barrel, after sliding by more than $1 earlier in the morning. WTI oil futures in the United States increased 62 cents, or 0.6 percent, to $110.21 a barrel in June, recovering from an early loss of more than $2. WTI rose $1.33, or 1.2 percent, to $108.26 a barrel in July. Both benchmarks’ front-month prices decreased by around 2.5 percent on Wednesday.
“A drop on Wall Street depressed sentiment in early trade, highlighting fears about declining consumption and gasoline demand,” said Rakuten Securities commodity analyst Satoru Yoshida. On Thursday, Asian stocks followed Wall Street’s dramatic selloff. Investors are worried about increasing global inflation, China’s zero-COVID policy, and the Ukraine conflict.
More Sanctions Await Russia
The European Union suggested a new round of sanctions on Russia for its invasion of Ukraine earlier this month. This would entail a six-month outright embargo on oil imports. Still, the restrictions have yet to be implemented, with Hungary being one of the most outspoken opponents of the idea. On Wednesday, the European Commission proposed a 210-billion-euro ($220 billion) plan to wean Europe off Russian fossil fuels by 2027 and utilize the tilt away from Moscow to accelerate the transition to renewable energy. Also, unexpectedly, US oil stockpiles declined last week as refiners increased output due to low product inventories and near-record exports, which have pushed US diesel and gasoline prices to new highs.
On the East Coast and Gulf Coast, capacity utilization was above 95%, placing refineries close to their maximum operating rates. Investors in China are keeping a tight eye on plans in Shanghai, the country’s most populated city, to relax restrictions beginning June 1, contributing to a rise in oil demand in the world’s top crude importer. SPI Asset Management’s Stephen Innes said the news that Shanghai planned to gradually restore inter-district public transportation starting May 22 was good for risk and supported oil prices.
