At the beginning of the week, the barrel of the WTI variety rose 1.1% and closed at 77.20 dollars; while the Brent rate gained 1.2% and ended at 84 dollarsaccording to figures from the London market, due to the holiday in the United States.
Oil prices were also affected by a build-up of inventories in the US last week substantially higher than expected, while the Biden administration also announced the sale of 26 million barrels of crude from the Strategic Petroleum Reserve.
Oil recovery due to Chinese demand
In the oil market, signs of a recovery in China are gaining strength, with the consequent demand for oil, although the prospect of further monetary tightening by the Fed to combat inflation puts pressure on prices.
The crude market is off to a fragmented start to 2023 as investors juggle lingering concerns about a global economic slowdown and optimism around China.
The geopolitical factor has fully entered the hydrocarbons market and the development of the war in Ukraine acquires daily importance of varying intensity.
Tension in Taiwan and North Korea
At the same time, tensions in the Far East, over the Taiwan issue and over North Korea add other ingredients to the already tight oil market.
Controls and sanctions on Russia
The US plans to impose new export controls and new sanctions on Russia, targeting key industries a year after the invasion of Ukraine. The measures will target the country’s defense and energy sectors, financial institutions and various individuals, according to people familiar with the matter.
The situation escalated over the weekend after China warned the United States that it would “bear all the consequences” if it escalated the controversy, while the United States responded by warning China not to arm Russia in its war effort in Ukraine.
In addition, North Korea fired three ballistic missiles off its eastern coast on Monday, while the UN nuclear watchdog has found 84% enriched uranium in Iran, a level very close to making weapons.
Meanwhile, Russia plans to cut its oil production by 500,000 barrels a day in March, in response to the imposition by Western powers of price caps on its oil and derivatives.
Shortage of oil supply?
Future oil supply shortages are likely to push prices toward $100 a barrel by the end of the year, Goldman Sachs said in a note on Sunday.
But it is also likely that oil moves in tandem with the Fed’s monetary policy which, if it keeps its rates above 5% per year, could cause a sharp drop in activity.
“A string of strong data in recent weeks has raised expectations of a more hawkish Fed, weighing on most risk assets,” ING analysts said.