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Crude oil price looks lower on China lockdown fears ahead of OPEC+

Crude oil prices are under pressure on global growth concerns; China’s economic fortunes are weighed by policy and disruptive restrictions and futures markets might provide hints for WTI’s direction.

Source: Bloomberg

Crude oil made a one-year low overnight before recovering and finishing higher for the session. The WTI futures contract dipped below US$74 bbl while the Brent contract had a look below US$82 bbl.

Rising concerns about global growth undermined risk appetite to start the week. China’s continuing pursuit of its zero-case Covid-19 policy, which requires widespread lockdowns, is seen as impeding an economic recovery there.

The policy has led to protests across several major cities in China. On Monday night, the police cracked down to prevent further demonstrations. It is being reported that authorities are checking citizens’ identification in and around the key protest sites.

The world’s second-largest economy is a massive importer of energy and the impact of a slowdown there could weigh on crude prices.

OPEC+ will be meeting on Wednesday and there has been some speculation that they may consider cutting production more than previously flagged.

They have previously said that they plan to reduce output by two million barrels per day. The practical implementation of such an announcement might be difficult to achieve given that the cartel and its allies have been unable to meet their current quota targets.

The Asia-Pacific trading session has seen oil prices ease off again perhaps on the back of several speakers from the Federal Reserve. This included James Bullard, John Williams and Lael Brainard.

The main theme from those three board members was that the Fed had more work to do in their fight on inflation, inferring tighter monetary conditions going forward.

After the New York close, Thomas Barkin added to the hawkish chorus in an interview with Bloomberg.

Some clues for the move lower might have been in some of the underlying supply and demand dynamics. Last week saw both the WTI and Brent futures markets dip into contango.

Contango occurs when the contract closest to settlement is cheaper than the contract that is settling after the first one. It highlights a willingness by the market to take delivery later, rather than sooner.

WTI crude oil, backwardation/contango, oil volatility

Source: TradingView

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This information has been prepared by IG, a trading name of IG Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.
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