Oil plummets, recession risk and China containment worry

Oil is struggling. Brent and WTI fell 5%, to 98 and 93 dollars a barrel, before the specter of a European embargo on oil and gas since Russia ebbs “Right now it’s mostly bad news coming from Porcelain that weigh on prices, as the number of Covid cases continues to rise,” warns Barbara Lambrecht, an analyst at Commerzbank. Faced with the worst wave of Covid-19 in China since the start of the epidemic, Shanghai, the country’s economic capital, has been in total or partial confinement for two weeks.

“In other words, the lockdowns that are holding back demand for oil in the world’s second-biggest consuming nation are likely to last a long time,” Lambrecht said. For Victoria Scholar, an analyst at Interactive Investor, Beijing is limited to “its aggressive policy of zero tolerance (Covid) to the detriment of its economy.” “There is a fear that lockdowns and economic restrictions will get worse if cases spread to other cities,” she explains. The release of strategic reserves promised by oil-consuming countries “also helps to allay fears linked to” scarcity “and to fill part of the Russian supply absent from the market,” says Fiona Cincotta, of City Index, questioned by AFP.

Mme Streeter notes that the price of oil devraient remains volatile in court terms in regard to the situation in Ukraine, the analysts do not exclude the definitive measures of sanctions against the Russian hydrocarbons, even if they are not at the end of the day immediately.

“Fears are growing that Russian aggression will soon escalate significantly,” said Susannah Streeter, an analyst at Hargreaves Lansdown, cities bracing for “more sustained attacks.”

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If the foreign ministers of the European Union studied a sixth package of sanctions against Moscow on Monday, an oil embargo on Russian hydrocarbons is not “on the table” at the moment, a senior European official acknowledged on Friday.

Another bearish factor: “the possibility of a slowdown in global growth (…) could also weigh on the outlook for demand,” underlines Fiona Cincotta. “There is more and more talk of an economic recession next year, with central banks clearly preferring a mild recession to runaway inflation,” Bjarne Schieldrop, an analyst at Seb, also told AFP.

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