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Oil’s Low Prices Draw Rash Of Hedging

Irina Slav

Irina Slav

Irina is a writer for Oilprice.com with over a decade of experience writing on the oil and gas industry.

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Oil Prices Under Pressure As Demand Concerns Mount

  • Oil prices started the week more than a dollar down as bearish sentiment continues to weigh on markets.
  • Reports that China could see its annual oil demand fall for the first time in two decades and expectations of further rate hikes by central banks added pressure to prices.
  • While the downward trend in oil prices is clear, the looming EU embargo of Russian oil and threats by Russia to cut supply could send prices soaring.

Oil prices fell early on Monday morning as bearish sentiment continued to weigh on markets amid expectations of further interest rate hikes and concerns about Chinese oil demand.

Brent started the week more than a dollar down at $91.80 a barrel at the time of writing. West Texas Intermediate was trading at $85.64 a barrel, also down by more than a dollar per barrel.

The main downward pressure on oil prices in the past few days has been a report that China could see its annual oil demand shrink for the first time since 2002 because of Covid restrictions under Beijing’s zero-Covid policy.

Oil imports over the first eight months of the year were down for the first time since 2004, Reuters reported earlier this month, noting that there were now expectations for a drop in fuel demand during the upcoming holiday season.

Energy Aspects predicted that China’s fuel demand could go down by 380,000 bpd for the whole of this year due to the restrictions.

"The lingering presence of headwinds from China's renewed virus restrictions and further moderation in global economic activities could still draw some reservations over a more sustained upside," said IG market analyst Jun Rong Yeap, as quoted by Reuters.

Worrying forecasts about Chinese demand have coincided with a more interventionist policy from central banks, with both the European Central Bank and the Federal Reserve planning further rate hikes in their attempts to tame runaway inflation.

"Demand concerns centred on the impact of rising interest rates to combat inflation and China's COVID-zero policy," Reuters quoted a Commonwealth of Australia Bank analyst as saying.

Prices could rise in a few months, however, as an EU embargo on Russian oil and fuel imports comes into effect. Meanwhile, the G7 is considering sanctions on oil importers that do not comply with the oil price cap the group agreed upon earlier this week. Russia has warned it will not sell oil to price cap participants.

By Irina Slav for Oilprice.com


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