Crude values collapse as China announces fresh lockdown measures

Front-month ICE Brent has plunged $7.03/bbl lower on the day, to $97.30/bbl at 09.00 GMT.

PHOTO: Crude values have come under pressure as China announces new lockdowns. Getty Images

Upward pressure:

The American Petroleum Institute (API) estimates that commercial crude oil stockpiles increased by 593,000 bbls in the week to 26 August, outweighing a Reuters analyst poll estimate of a 1.5 million bbls draw. Official Energy Information Administration (EIA) figures will come out later today.

Some market participants think OPEC+ could announce production cuts at its upcoming meeting on 5 September. Crude values have been supported after Saudi Arabia warned that OPEC+ would reduce production. Saudi officials have argued that the Brent futures price is not aligned with market fundamentals.

Other members in the group have somewhat supported Saudi Arabia’s proposal to cut production. “It seems OPEC+ isn’t interested in the oil price slipping much below $100 a barrel,” said OANDA's senior market analyst Craig Erlam.

Downward pressure:

Renewed Covid-19 outbreaks in China and fresh lockdowns have threatened the country's demand recovery. Several cities in China, including Shenzhen and Dalian are imposing new lockdowns and restrictions to curb rising Covid-19 cases.

Some independent Chinese refiners are planning to increase refinery maintenance activity in September amid slower demand, ANZ commodity strategist Daniel Hynes said.

Pressure on crude values have eased some, after Iraqi state-owned State Organization for Marketing of Oil (SOMO) announced that its oil exports were unaffected due to political unrest in the country. Violent clashes and protests that erupted on Monday eased yesterday after Iraqi cleric Moqtada al-Sadr ordered his followers to end their protest.

SOMO asserts it can redirect more crude oil exports to Europe if required, Reuters reported citing comments from SOMO officials. The refiner began exporting big volumes to Europe in June after some of its major buyers such as India and China stepped up purchases of Russian Urals.

By Nithin Chandran

Please get in touch with comments or additional info to news@engine.online