The price of oil began to decline rapidly on Thursday afternoon. The main reason is the high probability of a reduction in global fuel demand against the background of news from China.
July Brent futures on the London ICE Futures exchange were at the level of $108.56 per barrel at the time of preparation of the material, having decreased by 0.53% to the final value of the previous trading session.
June futures for WTI crude oil on the electronic trading of the New York Mercantile Exchange by this time fell by 0.68% to $108.37 per barrel.
China, which is the largest importer of oil, has announced its intention to finally lift quarantine restrictions in Shanghai, and freedom of movement promises to resume there as early as June 1. However, this news is overshadowed by the fact that new outbreaks of coronavirus are being observed in other Chinese cities. Actually, for this reason, investors are inclined to believe that the demand for fuel is likely to fall.
It is worth saying that the expected low demand from the world's largest oil consumer is offset by the fact that the supply of raw materials from Russia to the world market is under threat due to the conduct of a military operation on the territory of Ukraine.
At the same time, China intends to increase the volume of trade with Moscow and does not tire of negotiating with the Russian government about the purchase of oil for its strategic reserves. According to Bloomberg, these negotiations are conducted between government groups and practically without the participation of representatives of oil companies. However, it is worth mentioning here that the volumes and terms of the upcoming transaction have not yet been determined.
The military actions in Eastern Europe have made their own adjustments to the global energy market and reformat trade flows. Russian oil is currently trading at a significant discount, as many active buyers in the past were forced to abandon it in order not to fall under sanctions and not spoil their reputation. It is obvious that replenishing your strategic reserves with relatively cheap fuel is a competent and profitable move. And China is trying not to miss this opportunity.
No one knows the exact data on the size of China's strategic reserves, however, according to the estimates of some companies, this figure is approximately 1 billion barrels of oil. Given the reduction in demand due to strict restrictive measures, it becomes obvious that China's existing stocks have increased significantly in recent weeks.
The US stock market also contributed to the sharp drop in oil prices, more precisely, the fact that it declined very significantly on Wednesday. The reason for the fall in stocks was the expectation of a deep recession, which traders predict for the economy of the United States. There is an opinion that the US market simply cannot withstand such a rapid tightening of monetary policy, which is being pushed by the Federal Reserve. The fall in US stocks directly affected the price of oil, as it increased expectations of a drop in global fuel demand.
Even the data on the fall in oil reserves in the United States last week could not correct the situation and turn the mood in the market. Thus, the reserves of raw materials unexpectedly decreased by 3.39 million barrels, although analysts predicted their growth by 2 million barrels.
Gasoline inventories in the United States fell by 4.78 million barrels, while distillates, on the contrary, increased by 1.24 million barrels. At the same time, economists were confident that these reserves would decrease by 1.4 million barrels and 600,000 barrels, respectively.
Probably, the main reason for the reduction of oil reserves in the United States lies in the fact that oil refineries and exporters of oil have recently shown such increased activity that even the release of 5 million barrels from strategic reserves and the growth of production and imports have not been able to properly increase the country's reserves.
