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Alex Kimani

Alex Kimani

Alex Kimani is a veteran finance writer, investor, engineer and researcher for Safehaven.com. 

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Has Oil Lost Its Upside Momentum?

  • Weaker demand fundamentals have dampened upside momentum for crude oil.
  • Declining volatility and narrower intra-day trading ranges point at slowing bullish momentum for crude.
  • Standard Chartered: lockdowns in China will dent oil demand in April and May, but may not last much longer.

Anyone banking on more upside momentum for oil prices may be disappointed going forward, with a holding pattern now being determined by rising concerns over demand coupled with releases from strategic petroleum reserves. 

Oil prices have fallen particularly sharply over the past week as traders worry that China’s oil demand will take a big hit from reinstated lockdowns.

Brent blend for June delivery fell USD 10.84/bbl w/w to settle at USD 102.32/bbl, while WTI for June delivery fell USD 9.07/bbl to USD 98.54/bbl. Values were more robust along the curve, with Brent for delivery five years out falling just USD 1.44/bbl w/w to USD 72.70/bbl. 

The fall in prices gained pace on 25 April after testing of Beijing residents began following COVID cases being reported in the Chaoyang district of the city.

While volatility in the energy markets remains high, there are signs that it’s declining, with intra-day trading ranges also trending lower. Front-month Brent appears to be in the latter stages of its third wave since Russia’s invasion of Ukraine. The amplitude of the waves from low to high is declining; the first wave spanned USD 43 per barrel; the second USD 23/bbl, and the third USD 14/bbl. The dampening of the cycles is mirrored in smaller intra-day trading ranges; there were 14 days in March with an intra-day trading range of more than USD 8/bbl, but there has been just one so far in April.

And now, commodity analysts at Standard Chartered are warning that fundamental risks are skewed toward a market surplus, adding that traders should be cautious about short-term price rallies and should instead maintain long exposure in the middle and back of the price curve.

Demand Hit

According to StanChart, lockdowns are likely to dent China’s oil demand by 1.1mb/d in April. However, the decline is expected to only last a few months, with China’s demand growth expected to come in lower by only 78 thousand barrels (kb/d) by July.

However, the experts have cautioned that any extension of area-wide lockdowns would likely extend negative demand effects into Q3, increase the Q2 demand loss and take the annual demand growth forecast into negative territory.  Related: Bearish Momentum Grows, But Traders Remain Bullish On Crude

The global oil markets are currently dislocated, with crude flows having to be redirected and with shortages of specific oil products in specific locations--most particularly diesel in NW Europe. That said, StanChart says the market is not in an overall deficit and could even record a small surplus in April. The balance, however, looks tighter in Q3 and beyond, with the fall in China’s demand expected to be transitory while the decline in Russian oil output persists. The bank’s projected Q3 deficit of 0.9 million barrels per day (mb/d) is small enough to be filled by further increases in OPEC output and by a continued deceleration in oil demand growth as global economic growth weakens.

The latest EIA weekly data was highly bullish according to our US oil data bull-bear index, which rose 49.8 w/w to +63.4 (see China crude imports to remain low as demand falls). Crude oil inventories fell 8.02 million barrels to 413.73 million barrels, leaving them 79.28 million barrels lower y/y and 71.61 million barrels below the five-year average. The w/w fall in crude oil inventories was 10.4 million barrels relative to the five-year average and 10.2 million barrels relative to the pre-pandemic 2015-19 average. The w/w change in the crude oil balance was dominated by a 2.09mb/d increase in crude oil exports to 4.27mb/d, just 192kb/d less than the all-time high. The overall w/w change in the balance was 2.486mb/d in the direction of lower inventories. The EIA estimate of crude oil output rose 0.1mb/d to a 23-month high of 11.9mb/d.

The U.S. oil rig count rose by a single rig w/w to a two-year high of 549 according to the latest Baker-Hughes survey, and the gas rig count also gained a single rig to a 30-month high of 144. The largest rise in oil activity was recorded in the Bakken region of North Dakota and Montana, where the rig count gained two to 35. Activity in the Permian was unchanged at 332 rigs; among the Permian sub-basins, Delaware Basin activity rose by one to 172 rigs, Midland Basin activity fell by one to 130 rigs, and other Permian activity was unchanged at 30 rigs.

The latest EIA Drilling Productivity Report estimates that 433 wells were completed in the Permian Basin in March, a two-year high and still comfortably ahead of the 363 new wells drilled. The number of drilled-but-uncompleted wells (DUCs) in the Permian fell by 71 m/m (5.1%) to a five-year low of 1,309 in March, while DUCs in other regions fell by 43 (1.4%) to 2,964. The report made some significant downward revisions to Permian oil liquids output, with the March total revised 163kb/d lower to 4.975mb/d. The EIA expects Permian output to rise 82kb/d m/m in May to 5.137mb/d, with the total across the regions covered expected to rise 133kb/d to 8.649mb/d.

Overall, the bulls still have the upper hand.


The distribution of the bull-bear index has been skewed to the bullish over the past year: there have been 31 bullish, 12 bearish, and nine neutral readings. The skew is particularly pronounced in the tails, i.e., the ultra-bullish or bearish (weakest and strongest 5%), and the highly bullish or bearish readings (the next 10% in each tail). There has not been an ultra-bearish reading in the past year (the last one was 91 weeks ago), whereas there have been four ultra-bullish readings. There has only been one highly bearish data release over the past year, while the latest week’s reading is the 10th highly bullish release over the same period.

By Alex Kimani for Oilprice.com

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  • Mamdouh Salameh on April 28 2022 said:
    No it hasn't. It is merely shedding the remnants of the Ukraine price premium and returning to the pre-Ukraine levels.

    And despite high oil prices, global oil demand is still surging ahead. The reason is that the global oil market is in its most bullish states since 2014 and demand is already in a super-cycle phase of accelerating demand growth which could last for ten years and push Brent crude price to $120 a barrel in the next few years.

    Moreover, there is no solid evidence of a lockdown-instigated decline in Chinese oil demand and if there is it must be so minute that oil prices aren’t reflecting it.

    Bullish oil demand and prices are here to stay.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London
  • Ian Moodfish on April 29 2022 said:
    Mamdouh for president.
  • ROBERT SCHELLY on April 30 2022 said:
    I concur with Mamdouh's points above. Unwise to chase barrel prices up the flagpole. On the other hand, prices and demand will remain high and the sector is solid as an investment. It's a totally different practice than that of a momentum speculator buying 300-500-1000 p/e stocks on the NASDAQ.

    So long as the current U.S. administration pursues its misguided New Green policies, fossil fuel investment, financing, and insurance for projects will lag and therefore production will wane and prices will stay up. The administration is openly hostile to fossil fuels yet cannot even begin to run the country without them.

    I have no doubt a sharp drop will occur when the Rus/Uke situation is finally resolved - that's why I'm not all-in - but remember high pump prices were manifest across the U.S. months before Russia moved in and will remain for a long time after the shooting stops.

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