The massive sell-off recently observed in the crude oil market coincides with the negative news from China. China started opening the Shanghai area after several weeks of tough restrictions, but now the authorities are considering closing the Beijing area, which could further weaken the country's oil demand. Overall, the latest import data for March from China and India showed a clear decline in oil demand, which is also illustrated by a steep decline of refining capacity in the Shandong region of China, where private refineries operate. Leaving aside the initial period of the pandemic, only 50% of the refinery's capacity was used for the last time in 2016. Over the past two years, the average has been around 70-75%.
Brent fell below $ 100 a barrel and one can notice that the world is very much afraid of the slowdown caused by the pandemic in China and more hawkish Fed. The market currently expects three 50bps hikes in the US, however some economists forecast two 75bps hikes. Strong rate hikes could lead to a sharp slowdown of the largest economy in the world. So we have the prospect that the two largest economies in the world, the US and China, may face demand problems.
At the same time, it should be remembered that the economic slowdown should not result in a significant drop in demand for oil. Only a recession could lead to the destruction of demand, although at this point it does not seem to be the baseline scenario. In turn, it is important to remember about the considerable risk related to the supply. First, OPEC + is not producing as much as it could. It is indicated that the difference between the production target and real production is approximately 1.5 million bpd. In addition, the European Union is planning to introduce special sanctions regarding the import of crude oil from Russia, which may raise additional concerns regarding the availability of this commodity on the market.
OIL - The price of crude oil fell below $100 per barrel and the 50.0% Fibonacci retracement of the upward wave launched in December. In theory, and again erased all of the post-war gains. Further prospects for oil will depend on whether fears regarding economic slowdown or the factors related to the supply shortage from Russia and OPEC prevail. Source: xStation5
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