Oil prices remained volatile on Monday as demand concerns due to movement restrictions in China collided with expectations of potential European sanctions on Russia’s energy exports that could squeeze supply in global markets.
Brent, the global benchmark for two-thirds of the world's oil, was down 0.32 per cent at $106.80 per barrel at 9.03pm UAE time on Monday. Meanwhile, West Texas Intermediate, the gauge that tracks US crude, was also trading 0.32 per cent lower at $104.35 a barrel.
“Oil prices are being hemmed into a tighter range by contrasting supply-demand forces, having been whipsawed over the past two months by supply-side concerns stemming from the Russia-Ukraine conflict and demand-side risks from China’s ongoing lockdowns,” Han Tan, chief market analyst at Exinity, told The National.
“With an EU ban on Russian oil imports growing likelier than a further increase in Opec+ output, tightening supply conditions should keep oil prices well supported as long as China’s demand isn’t substantially eroded by extended and wider lockdowns.”
The EU is seeking to impose a phased ban on energy imports from Russia as Moscow continues its military offensive in Ukraine. The latest move from the EU member countries comes after Russia halted natural gas supplies to Poland and Bulgaria last week.
The EU is heavily dependent on Russian imports. In 2021, the bloc imported 155 billion cubic metres of natural gas from Russia, which accounted for about 45 per cent of EU gas imports and close to 40 per cent of its total gas consumption, International Energy Agency figures indicate.
“Oil traders are betting that there is a strong possibility of Russian oil going under sanctions, especially after [US House of Representatives Speaker] Nancy Pelosi went to Ukraine over the weekend. This is keeping the price for Brent and crude above the $100-price mark,” said Naeem Aslam, chief market analyst at Avatrade.
Ms Pelosi visited Kyiv on Sunday and pledged continued American support for Ukraine in its fight against Russia. She is one of the top-ranked US officials to visit Ukraine since the war broke out in February.
Meanwhile, China's movement curbs in its largest city, Shanghai, as well as in the capital Beijing, to contain Covid-19 outbreaks are raising concerns about demand for oil. Millions of people have had to stay indoors in Shanghai for more than a month as the government carries out mass testing of its population to isolate infected people and stem the spread of the disease.
Libya is also opening the Zueitina oil terminal to resume exports after the unit was shut down last month because of political turmoil in the country. The development is expected to add further downward pressure on oil prices.