Oil rebounded amid a bumper run of volatility, with investors continuing to weigh the fallout from Russia’s invasion of Ukraine against fresh Covid-19 lockdowns across top crude importer China.
Futures in New York traded above $99 a barrel, having fallen about 23% from this month’s high. The Kremlin said Thursday that reports of major progress in talks over Ukraine are “wrong.” The war has severely disrupted Russian oil flows, and the International Energy Agency predicted output from the key OPEC+ member will drop by about a quarter in April.
“To say that oil prices have been volatile recently would be an understatement,” Morgan Stanley analysts Martijn Rats and Amy Sergeant wrote in a note, boosting their forecast for third-quarter Brent by $20 to $120 a barrel. “It will likely become progressively more difficult for Russia to maintain its seaborne exports in the coming months.”
Investors are also monitoring a virus resurgence in China. Traffic congestion levels in partially locked-down Shanghai are more than a third lower than a year ago and there are also restrictions on movement in the manufacturing hub of Shenzhen and in Jilin province.
Rapid developments in the war in Ukraine and the ensuing sanctions on Russia are driving wild fluctuations in the market, and holdings in oil contracts have slumped due to the volatility. Libya said Wednesday that OPEC should ramp up supply faster to ease the energy crisis, while U.K. Prime Minister Boris Johnson expressed optimism that Saudi Arabia may raise output, but he got no guarantees from the kingdom’s crown prince.
While buyers are shunning Russian oil despite heavy discounts, the nation plans little change to loadings of its flagship Urals crude from its Baltic and Black Sea ports in early April. It’s not clear whether the shipments will all find buyers, so actual loadings may be different.
Brent crude had surged to almost $140 a barrel earlier this month, only to slide back below $100 this week, exceeding the 20% swing used to characterize a bear market. The extent of the liquidation shows up in open-interest data. Holdings in oil futures have fallen to the lowest since 2015 across the main Brent and WTI contracts combined.
The U.S. Federal Reserve, meanwhile, raised interest rates by a quarter percentage point, kicking off a campaign to tackle the fastest inflation in four decades even as risks to economic growth mount.