- WTI has risen for a third straight day into the $109. 00s and is eyeing recent highs in the $111.00s.
- Risk on flows and concerns about EU/Russian gas trade are both supporting WTI at the moment, although it is still lower than last week.
- Global growth worries and the ongoing China lockdown remain a drag, making a break back above $110 harder.
Oil prices rose for a third straight session on Friday, with front-month WTI future last trading higher by close to 3% in the mid-$109. 00s per barrel, more than $11 higher than mid-week lows in the $98.00s. The Friday rally was partly fueled by a rebound of global equity markets after a difficult week for many, which had been marred by worries about weakening global growth and central bank tightening.
However, WTI’s rally on Friday still leaves it lower by about $1.0, or 0.7%, on the week, though the bullish momentum of the past few days suggests a test of recent highs in the $111. 00s is certainly a possibility by the end of this week/early next. Despite some potentially bearish developments in the last few days, recent bullish momentum in crude oils markets is encouraging.
Firstly, Chinese lockdowns are not showing any signs of widely easing, even though cases in key cities like Shanghai fall. Beijing authorities were forced to discredit rumors Friday that Beijing was heading into total lockdown. In separate news, there are reports that the EU could abandon plans to embargo Russian oil imports due to continued resistance from Hungary.
But, concerns about a Russian oil export blockade as Gazprom stops flows to a few of its European sub-units following Russia’s sanctions, and flows in Ukraine facing disruption, are likely to negate the bearish developments. Analysts on Friday have been fretting about the longevity of the global risk asset rally, and if sentiment takes a turn for the worse next week, it may be hard for WTI to hold in the upper $110s, especially if the EU’s Russian oil embargo plan collapses.
Oil trader should remember that oil markets are also affected by global growth concerns, which currently weigh on other asset classes. In their most recent monthly reports, OPEC and the International Energy Agency (IEA), both reduced their forecasts for oil demand growth 2022. They cited the effects of lower Chinese demand and slower growth elsewhere. That’s another reason why, in the absence of fur