Oil: ambiguous situation. Forecast as of 27.04.2022

The outbreak of COVID-19 in China and an increase in offshore oil supplies from Russia have led to Brent’s fall below $100 per barrel. However, the gradual reduction of Germany’s dependence on Russian oil gives the matter a new turn. Let’s discuss the topic and make up a trading plan.

Weekly oil fundamental analysis

After impressive fluctuations in March, the oil market calmed down and consolidated. Investors wonder if the risks of excluding the largest oil manufacturer will be more serious than lockdowns in China. In the first case, the supply will decrease, contributing to an increase in prices. In the second case, demand will decrease, lowering the Brent price. Brent movements are multidirectional, and it is very difficult to predict further developments, but it is possible.

The Chinese authorities have announced a five-week lockdown in Shanghai and intend to conduct mass testing in 11 out of 16 districts in Beijing. These events scared oil buyers into cutting sales en masse. Brent has fallen below $100 a barrel. In addition, the issue of the EU joining the embargo on Russian oil remains unresolved. Germany and other countries oppose the import ban because it will harm their economies, while EU officials believe rising oil prices will increase Russian budget revenues.

In the meantime, according to Bloomberg, in the week ended April 22, the average Russia’s seaborne crude flows amounted to 4 million BPD, which is a quarter more than a week earlier. Countries continue to buy Russian oil, which reduces the risk of embargo and contributes to the Brent fall. Moreover, Libya has announced that the work of fields closed due to political unrest will resume shortly. Oil production in this country has decreased from 1.3 million BPD to 500 thousand BPD.

Dynamics of Russia’s seaborn crude flows

Source: Bloomberg.

These flows could be related to old contracts concluded before the armed conflict in Ukraine. As for the new ones, Rosneft’s tender for the supply of 38 million barrels failed miserably. No buyers were found, suggesting an unspoken embargo. According to the IMF, oil and gas account for about 45% of Russia’s budget revenues, so troubles with oil sales could create serious problems for the Kremlin.

Despite the reluctance to impose a ban on Russian oil imports, Germany claims its dependence on Moscow has substantially decreased. The share of supplies from Russia in total imports has fallen from 35% to 12% since the outbreak of hostilities in Ukraine. Brent’s rise looks natural. This is supported by positive news from China, where the number of cases of COVID-19 in Beijing has decreased, and the Shanghai authorities are about to ease the lockdown. The growth of Brent is also supported by Russia’s refusal to supply gas to Poland and Bulgaria. The higher the cost of gas, the more oil and oil products will be used to replace it. An increase in demand leads to an increase in Brent’s price.

Weekly Brent trading plan

The longer the armed conflict in Ukraine lasts, the more likely that the EU will join the embargo. At the same time, China will certainly be able to cope with COVID-19. In this regard, buy Brent on a breakout of resistance at $107.4 with targets at $113.4 and $118.6 per barrel.


Price chart of UKBRENT in real time mode

The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteFinance. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.

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