Increasing Downside Risks

This weekly report is an excerpt from our Short-Term Outlook service analysis, which covers a period of eight quarters and provides monthly forecasts for crude oil, natural gas, NGL, refined products, base petrochemicals and biofuels.  Contact John Paisie (+1-832-517-7544 or E-mail) for the detailed analysis or for more information about the Short Term Outlook.


The price of Brent crude ended the week at $102.78 after closing the previous week at $104.39. The price of WTI ended the week at $98.26 after closing the previous week at $99.42.

Downward pressure on oil prices is coming from the following factors:

  • As has been the case for several weeks, China continues to struggle with the number of COVID-19 cases, even as China sticks with the policy of lockdowns and quarantines.  Shanghai and surrounding area remain at the center of the COVID-19, where the efforts to combat COVID-19 are expanding. Currently, Shanghai authorities are converting apartments, and public buildings like exhibit halls into quarantine centers with the number of such facilities now exceeding 60. The zero-COVID policies are also affecting manufacturers, including Apple, Tesla, Volkswagen, and Taiwanese electronic manufacturers. The policies are also affecting port operations with the port of Shanghai operating at 40% of pre-lockdown levels. Meanwhile, the number of cases continue to increase with more than 20,000 new daily cases occurring in Shanghai.
  • Oil demand in the US has been weak for the last several weeks. While the latest weekly report from EIA indicates that gasoline demand in the US increased slightly to 8.56 million b/d from the previous week of 8.50 million b/d, current gasoline demand (based on the four-week average) is running 708,000 b/d less than for the same period of 2019. Based on the four-week average, diesel demand is running 296,000 b/d less than in 2019 and jet fuel is running 192,000 b/d less than in 2019. The weakness of US oil demand is troubling, not only because the US is the largest consumer of oil, but because its economy has been doing better than the rest of the major economies.
  • While there are concerns about oil demand, the supply situation is also not been supportive of oil prices. President Biden announced another release of one million b/d for the next six months starting in May. The release will be the largest in history. In conjunction, another 60 million barrels will be released by other IEA countries. Additionally, Russia is continuing to export crude oil at levels not dissimilar to the levels prior to the initiation of the Russia-Ukraine conflict. Russia’s Deputy Minister stated that oil production during April will decline by only 4-5% (around 500,000 b/d) from the average in March of 11.01 million b/d. The reduction stems, in part, from logistic issues associated with shifting exports towards Asia and away from Europe. Even if Europe further reduces Russia oil imports, Russia has the ability to export barrels to other consumers through ports in the Black Sea, Baltic and Pacific. The impact will be mitigated because there is no need for additional infrastructure, but instead only the rerouting of shipments.

For the upcoming week, we are expecting further pressure on oil prices with oil prices moving toward the lower level of our forecast of Brent prices remaining between $95 and $115 with price movements remaining highly sensitive to news flow.

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