Crude oil price: upside risk persists despite SPR releases

Crude oil price remains under pressure as the market continues to react to the soaring COVID-19 cases in China and SPR releases from key consuming countries. Earlier on Monday, Brent futures dropped to its lowest level in about two-and-a-half weeks at $103.77 per barrel. As at 11:11 a.m GMT, it was at $104.61. At the same time, WTI futures is hovering around the crucial level of $100 at $99.71.

Fundamentals

According to the head of Asia at Vitol Group, Mike Muller, the current prices don’t reflect the supply risks linked to the ongoing Russia-Ukraine war. During an interview conducted on Sunday on Gulf Intelligence podcast, the official noted that crude oil price will likely remain elevated in the foreseeable future. $100 per barrel has been a steady support zone since Russia invaded Ukraine over a month ago. Vitol Group is the leading independent trader of crude oil in the world.

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The surging COVID-19 cases in China is one of the aspects weighing on crude oil price. In particular, most of the people in the nation’s most populous city – Shanghai – are in some sort of lockdown.

China is the leading importer of crude oil in the world. As such, investors are concerned that the coronavirus-related restrictions will dent demand. However, Muller is of the opinion that the Chinese government is in a position to curb the outbreak in line with its zero-COVID strategy.

At the same time, Muller is sceptical about the return of Iranian oil in coming months. According to the state-run Islamic Republic News Agency, Iran has indicated that it is close to reaching an agreement with the US regarding the restoration of the 2015 nuclear deal. This is after forwarding proposals to Washington in an attempt to solve the stalemate on terrorism sanctions.

Interestingly, in the past week, the US stated that it’s not confident that the Iranian nuclear deal will be revived soon. Based on the stalemate, Muller believes that a deal will likely not be reached within the year’s second quarter. An agreement would have the US lift sanctions on Iranian energy exports; easing the tight global market.

While crude oil price will likely remain subject to high volatility in the ensuing sessions, the Russia-Ukraine crisis will continue to offer steady support to prices. Even with the SPR releases from key oil consumers,  there is still a higher upside risk stemming from the situation in eastern Europe.

In addition to the sanctions imposed on the country by the West, buyers, bankers, shipment companies, and insurers are hesitant to take on Russian oil. From this perspective, the Vitol Group official notes that “oil prices could be higher given the risk of disruption of supplies from Russia. But people are still lost figuring out those numbers.”