China demand worries dull oil price impact of EU’s Russian embargo plan
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The European Commission on Wednesday proposed one of the most sweeping changes to global energy flows in history. But the oil price barely responded. Brent, the international benchmark, rose 3.8 per cent to around $109 after the commission proposed a phased-in ban on all imports of Russian crude and refined products into the EU. Traders and analysts said the muted price response reflected the long-build up to the announcement, the phased-in approach, suppressed oil demand in China due to a resurgence of coronavirus and the price-calming impact of petroleum releases by the US and its allies. Brent has hovered at $100-$115 a barrel since the start of April. “It’s a very small move on a momentous decision,” said Bjarne Schieldrop, chief commodities analyst at Swedish bank SEB. “If it hadn’t been for the Chinese lockdowns and the [strategic petroleum reserve] releases then the oil market reaction would have been much stronger.”
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Since Russia invaded Ukraine in February, traders have been attempting to predict the extent of any long-term disruption to Russian energy flows and its impact on what was already a tight global oil market. Immediately after the invasion, oil rallied to a 14-year-high of $139 a barrel as the US prepared its own ban on Russian imports. Prices then pulled back as Europe, particularly Germany, resisted EU-wide restrictions, even as many European companies began to shun Russian cargoes.
Concerns over a lockdown-induced drop in Chinese oil demand have had the biggest sway on crude prices since the start of April, said Amrita Sen, chief oil analyst at consultancy Energy Aspects.
“On a normal trading day we would be up 10-15 per cent but right now the issue is that . . . the market is genuinely very wary of the demand situation in China.” The country is the world’s biggest importer of crude oil.
Standard Chartered estimates that Chinese oil consumption fell due to recent Covid restrictions by as much as 1.1mn barrels per day in April — representing approximately 1 per cent of global demand — but that it will recover by July.