West Texas Intermediate futures rose more than 3% to trade above $97 a barrel. Shanghai has eased lockdowns for some housing complexes, but most people remained confined to their homes, and authorities have indicated they will reimpose restrictions if virus cases climb. Oil has now given up almost all its gains since Russia’s invasion of Ukraine in late February.
The oil market’s structure has softened markedly in recent weeks, as the spike in the price of physical barrels that emerged after war broke out gives way to calmer conditions. Differentials for supplies from the Middle East to West Africa have declined.
Oil prices have moved lower recently due the planned release of emergency reserves, the resurgence of Covid-19 in China — prompting concerns about demand — and uncertainty that Russian exports will hold up, according to Helge Andre Martinsen, a senior oil analyst at DNB Bank ASA.
“The price risk is skewed to the upside as Western sanctions will continue to escalate given Russia’s continued aggression,” he said in a research note.
The oil market has seen a tumultuous period of trading since late February, whipsawed by Russia’s invasion of its neighbor, rising tensions in the Middle East, the virus flare-up in China and tighter U.S. monetary policy. The spike in volatility spurred a liquidity crunch as exchanges hiked their margin requirements, though some of that move is now reversing with CME Group Inc. cutting margins for WTI by almost 8%.
The invasion has fanned inflation and prompted the U.S. and its allies to release strategic reserves to tame rising energy prices. OPEC’s top diplomat, meanwhile, told European Union officials that the current crisis in global oil markets caused by the Russia’s war is beyond the group’s control.