Crude Oil Prices Rally as EU Mulls Russian Ban, Saudi Facility Hit
CRUDE OIL PRICE OUTLOOK:
- WTI crude oil prices extended a four-day 18% rally amid talks about an EU ban on Russian energy imports
- Saudi Arabia’s refinery facilities were attacked by Iran-backed Houthi rebels over the weekend
- China’s tough measures against Covid-19 resurgence may cast a shadow over its energy demand outlook
Crude oil prices extended a four-day gain as traders mulled a possible EU ban on Russian energy imports and attacks on Saudi Arabia’s oil facilities. WTI is trading at $112.7 bbl, and Brent is hovering above $118 bbl during Tuesday’s APAC mid-day session. Meanwhile, China’s imposing of Covid lockdowns and travel bans in key cities raised fresh concerns about energy demand from the world’s largest oil importer.
European Union leaders and US President Joe Biden will meet later this week to discuss a further response to Russia’s invasion of Ukraine. Several EU countries believed that the bloc should impose more severe sanctions, including joining the US to ban Russian oil imports. This is unlikely to happen in the near term however, as Germany said these imports are crucial to the EU’s energy security.
Still, with the Ukraine war deepening and military conflict persisting, the likelihood of further sanctions is rising. Crude oil prices may have more room to go up if the EU were to impose sanction on Russian energy products, draining supply in an already tight market. The EU is the largest consumer of Russian oil and fuel products, and therefore any action taken against the trade may have profound impact on oil prices.
Separately, oil prices were boosted amid attacks by Iran-backed Houthi rebels targeting Saudi Arabia’s energy facilities over the weekend. According to the Saudi energy ministry, strikes carried out by drones hit a distribution terminal for refined oil products in the region of Jizan, a refinery on the Red Sea port of Yanbu and a natural gas plant.
On the demand side, restrictions have been eased in China’s southern city of Shenzhen after a week-long lockdown due to a Covid-19 outbreak. The city has 17.5 million people and is the technology hub of the Greater Bay Area. Meanwhile, millions more people in the country’s northeast were put under stay-at-home orders. The world’s largest oil importer was hit by viral resurgence in recent weeks. Policymakers have imposed stringent lockdowns, travel bans and social-distancing measures in many cities to contain the rapid spread of the Omicron variant. More than 40 million people were affected.
These efforts will inevitably dampen the country’s consumption of energy and raw materials. The question is how long it will take for the number of infections to be brought down to a level that is comfortable for authorities to relax these restrictions.Beijing’s “zero-Covid” strategy suggests that the lockdowns can get lengthy, casting a shadow over crude oil prices in the weeks to come.
Daily New Covid-19 Cases in China
Technically, WTIrebounded from a key support level of 94.9 last week, resuming its upward trajectory. The overall trend remains bullish-biased as prices formed consecutive higher highs and higher lows. An immediate support level can be found at around 105.80 – the 100% Fibonacci extension. An immediate resistance level can be found at around 119.25. The MACD indicator is about to form a bullish crossover, suggesting that buying pressure may be building.
WTI Crude Oil Price – Daily Chart
--- Written by Margaret Yang, Strategist for DailyFX.com
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DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.