Crude oil futures closed in the red Tuesday (April 5), with the market pressured by the appreciation of the dollar. In addition, there are concerns that China’s expansion of lockdown measures in Shanghai, China’s financial center, will affect oil demand. The price of crude oil also remains down with the prospect that members of the IEA will release strategic crude oil reserves and Western alliances of the U.S., especially in Europe could replace Russian oil through a swap operation in Asia.
- WTI crude futures were down $1.32, or 1.3%, at $101.96 a barrel.
- BRENT crude futures were down 89 cents, or 0.8%, at $106.64 a barrel.
The dollar index was 0.48% higher against the six major currencies in a basket of currencies at 99.4710, with the appreciation of the dollar making crude oil futures more expensive for investors holding other currencies.
In addition, demand in China could weaken further after China, the world’s largest importer of oil, announced an expansion of its lockdown measures for Shanghai, a city of 26 million people.
Chinese authorities tightened their traffic restrictions in Shanghai yesterday (April 5) after laying out a carpet for COVID-19 testing. Across the city, the number of confirmed COVID-19 cases rose to more than 13,000.
In addition, the prospect of an early oil release by members of the IEA is keeping oil prices down. However, the Japanese industry minister said that this could still take a while as the details are still being discussed at the moment. The U.S. has already announced that it will draw 1 million barrels per day from its strategic reserves for the next six months.
In addition, the Western alliances want to replace around 650,000 barrels of Russian crude oil per day with crude oil from the Middle East and Asia. This could be extremely lucrative for Asian countries, as they currently buy Russian crude at a large discount and can then resell it to European countries at the world market price. Europe and other U.S. allies have allowed prices for crude oil or natural gas to skyrocket due to sanctions imposed on Russia. It is questionable who is hurt more by the sanctions, Russia or the West?
Meanwhile, investors are watching the weekly U.S. crude oil inventory report, which the EIA will publish today.
The Spot Market is Open
Wednesday, April 6, 2022