FIS: Crude Oil Market Overview: EU to hasten embargo of Russian oil
Crude oil prices had another round of corrections following global economic worries on slowing Chinese economic activity, as the country pursued its zero-covid policy, putting some of its major cities into lockdown.
This was evident in Chinese export growth data, which dropped to single digits in April 2022, as strict covid restriction measures were introduced.
During April, the country achieved export growth of 3.9% year-on-year, much lower than the 14.7% growth recorded in March, which in itself was a two-year low in dollar equivalent terms.
Despite the concerns about low export growth, China’s crude oil imports continued to grow in April, up 7% year-on-year to 43.03 million mt or 10.5 million barrel per day (bpd), according to the General Administration of Customs.
However, Chinese refinery throughput seemed to be on the decline, as the country’s top refiner Sinopec stated that it had lowered operational rates to about 85% of capacity since the second half of March, compared to 92.6% earlier in the year, due to higher inventories from lockdown restrictions.
Meanwhile, the EU Commission continued to press for a ban on Russian oil with a proposed plan to stop the insurance of EU-owned tankers transporting Russian oil to third countries.
This was part of the EU’s sixth sanctions package against Russia, which previously planned to ban EU tankers from shipping Russian oil, but then softened to a proposed ban on providing insurance.
However, not all EU members were keen to agree on the proposal, namely Hungary, Slovakia, Czech Republic, and Bulgaria, as they are heavily reliant on Russian crude imports. Therefore, a transition period has been proposed to give them until 2024 to comply.
The EU also seemed to heed to G7 call to phase out Russian oil following the invasion of Ukraine, and if fully implemented, this could result in a cut of 3 million bpd of EU crude imports from Russia by the end of 2022, according to a Rystad Energy estimate.
Technical view of the crude oil market:
July Futures – We continue to lack any form of real trend in the futures.
The price did move higher despite a strong USD basket, warning that we had the potential to see a bullish breakout above USD 114.84. However, the recent upside move only traded as high as USD 114.00 before producing a technical pullback.
If we trade above the USD 114.00 high of the rejection candle from 05/05/22 then we should in theory see the USD 114.84 fractal resistance come under pressure. If it is broken, we target the USD 123.74 resistance.
The daily EMA support band remains flat, indicating a lack of trend (support band USD 107.67 – USD 104.61). Despite the flat averages, they are still acting as a support zone making it a dangerous area to go short.
Downside moves that trade below the USD 97.57 – USD 96.93 fractal supports will warn that the USD 90.12 level could be broken. This technical is neutral and looks to be forming a symmetrical triangle as it lacks direction. However, near-term price action is warning the support band could be tested.
Written by Titus Zheng Shujian and Edward Hutton, Edited by Chris Hudson (https://freightinvestorservices.com/fis-live/).
