Weekly Oil Report: Mixed Signals of the Market

Oil markets were still under the pressure of volatility during the last week. There are both bullish and bearish sentiments running through the market and it has confused many petrochemical traders. New attacks on Ukraine, untamed inflation, embargoes, and supply/demand problems set the stage for another falling week of oil. Following the one-month bearish trend of crude, Brent closed at $105.49 and WTI fell to $101.68 on Friday. Fundamental and technical analysis of the market suggests a near term fall under $100 but the long-term outlook still remains bullish.

The Russia-Ukraine war is on the cusp of its third month while Russia is expected to conquer Ukraine in less than a week. Mariupol is under siege and Russians hope that defenders surrender after running out of food and ammunition. While war goes on, crude experiences high volatilities.

The European embargo will bring a real shock to the market since Russia is the second-largest exporter of oil and energy. Depending on the speed of the phase-out, the market might lose more than 3 mb/d in short term. Russian refineries will eventually decrease the production rate due to the lack of new technology from the west and full storing spaces.

The oil price is currently at the pre-SPR-release level. Although the US is trying to calm the oil, it could not make any lasting effect. Demand in China remains low as the situation with Covid is still severe in the country. Morgan Stanley also revised their second half of the year forecasts to 2.7 million barrels daily from 3.4 million barrels daily. It also expects a $10 increase per barrel for the same period.

Petrochemicals will be volatile along with the crude. Prices were stalled for about three weeks as the traders hoped for lower prices. However, the market seems to be rising due to rushing demand in the Middle East.