Bearish sentiments on oil demand coming from renewed COVID lockdowns in China that shaved $4 off oil prices early on Monday failed to maintain traction, with sweeping production outages in Libya and other bullish drivers stealing the day.
By 1:37 p.m. EST, Brent crude prices had pushed their way back up to nearly $123 per barrel, with WTI trading at over $121.
Early Monday saw oil prices drop as COVID concerns added to fears that a rebound in Chinese demand would take longer. Bearish sentiment was also forming as a result of concerns of interest rate hikes to control inflation.
But by Monday afternoon, bullish sentiments had returned, with the markets digesting analyst statements on tight supply and OPEC+’s inability to reach output quotas due to lack of capacity.
OANDA brokerage analyst Jeffrey Halley told CNBC that “supply/demand dynamics remain supportive of prices”. Halley said he did not see any significant or lasting oil sell-off happening unless markets were hit with “full-blown recession” with new widespread lockdowns in China.
Also contributing to bullish sentiments is intensifying rivalry in Libya, where the weekend saw clashes between rival militias in Tripoli and the shutdown of more oil facilities. As of Monday, nearly all of Libya’s oilfields were shut down and the country was losing around 1.1 million barrels per day.
“We were struggling with the Russian loss (of oil) so now add an exclamation point with the Libyan situation,” Robert Yawger, executive director of energy futures at Mizuho, told Reuters.
Markets are expected to remain volatile, in the meantime, with China’s COVID situation tempering demand projections. While the latest outbreak reported over the weekend included only 166 cases, what the markets fear is Beijing’s zero-COVID policies, which can result in brutal lockdowns that dent oil demand.
NB: Charles Kennedy wrote this article for Oilprice.com