West Texas Intermediate futures traded below $122 a barrel. Shanghai will implement its first major restrictions on movement since the financial hub exited a two-month shutdown at the start of June, bringing back questions about a recovery in demand in one of the world’s biggest oil-consuming country.
It’s keeping prices in check after crude this week hit a three-month high on the back of strong markets for refined fuels. U.S. gasoline inventories are at the lowest seasonal level in eight years, according to Energy Information Administration data, while consumption is rising even as the retail price for the motor fuel — already at a record — approaches $5 a gallon.
Prices are likely under pressure from a renewed lockdown in China but “most other indicators remain supportive,” said Ole Hansen, head of commodities strategy at Saxo Bank. “Most important, the continued fall in Cushing and gasoline stockpiles and no visible change in US driver behaviour.”
Crude has maintained its upward momentum this year as economies rebounded from the pandemic, with Russia’s invasion of Ukraine upending trade flows and leading to further tightening. Prices are “nowhere near” their peak and China’s recovery from virus outbreaks threatens to strain the market, according to key OPEC member United Arab Emirates.
China is cautiously emerging from strict virus curbs, although Shanghai will lock down a district on Saturday for mass testing, highlighting the uncertain outlook. China National Petroleum Corp., the country’s biggest oil and gas producer, predicted oil demand will grow next quarter but warned of further disruptions this year due to more Covid-19 outbreaks.
Goldman Sachs Group Inc. said this week that prices needed to rally further to achieve the demand destruction required for market rebalancing. The bank increased its quarterly forecasts for this year and into 2023, raising its WTI estimate for the next quarter to $137 a barrel.
US gasoline stockpiles dropped by 812,000 barrels last week, according to the EIA. The 10 weeks of declines is the longest run since 2019. Nationwide crude inventories rose by 2.03 million barrels.