Oil prices rose in early Asian trade

Oil prices rose on Monday, supported by expectations of tighter global supplies ahead of European Union sanctions on Russian oil.

Brent crude futures were up 54 cents, or 0.6%, to $94.04 a barrel by 0125 GMT. Meanwhile, WTF crude was up 51 cents, or 0.6%, to $85.56 a barrel.

Brent crude rose 2% last week on a stronger dollar, and China should ease coronavirus restrictions, helping to restore the world’s second-largest consumer demand.

When the EU ban on Russian imports takes effect on December 5, global oil supplies are expected to be disrupted. In February, the group also intends to ban Russian oil imports. Even as it prepares to raise rates in early November, the Federal Reserve is considering slowing the pace or magnitude of future rate hikes.

If the Fed stops raising interest rates, the dollar, which weighs on commodity prices, could weaken. When the dollar depreciates, dollar-denominated commodities such as oil become available to holders of other currencies. Analysts, however, do not anticipate any significant shift in policy direction, including Xi’s zero-COVID strategy.

The price of Brent oil rose despite US President Joe Biden’s announcement last week that he would sell the remaining 15M barrels of oil in his strategic stockpile. The deal is part of May’s production plan of 180M barrels.

China’s Optimism About Oil Markets

China reported 3.9 percent economic growth in the third quarter of the year, which was higher than analysts expected and may inject fresh optimism into oil markets regarding demand.

Because of China’s size and weight as an oil importer, commodity lockdowns and other restrictions have been among the main natural caps on oil prices. The impact of these restrictions on business activity and fuel demand has been unmistakably negative. Still, the most recent economic data suggests it has not been as severe as anticipated.

Oil market participants closely monitored Chinese demand, becoming one of the few price swing factors. Recently, optimistic demand projections have pushed oil prices higher, albeit only marginally. The persistent and unsurprising fear of a global recession remains a significant headwind. In the short term, however, the outlook appears to be relatively positive, with all of the implications for oil prices, with infrastructure investment up 8.6 percent year to date and industrial production up 6.3 percent.

EU Gas Contracts

The German baseload price was 106 euros per megawatt-hour (MWh), down 5.4% from the previous day.

The comparable French contract fell 9.2% to 109 euros/MWh.

On Tuesday, the supply from German wind turbines should fall from 7.8 gigatonnes (GW) to 18.5 GW. Meanwhile, supply from France should fall from 5.1 GW to 5.4 GW.

French nuclear availability increased by 2% to 53% of available capacity.

Corrosion issues at the 1.5 GW Civaux 1 reactor have been resolved. Moreover, the maintenance schedule should remain on track.

German baseload for 2023 delivery fell 2.2% to 374.50 euros/MWh as gas prices and carbon permits fell.

After closing at 535 euros on Friday, the equivalent French position remained untraded.

European CO2 allowances expiring in December 2022 fell 1.24% to 67.912 euros per tonne.

The finance minister said over the weekend that it is unclear whether a gas price cut for German retail consumers and small businesses planned for March could be brought forward, citing technical and legal difficulties.

Prices for 70% of the large industry will be reduced beginning in January.