Oil sales escalated against the backdrop of Covid fears and the risk of US-China intervention

US crude fell to a seven-week low on Friday, settling at $76.10 a barrel. Slippage Good news for American drivers hit by a seven-year hike in gasoline prices – a crisis that has already occurred Consumer sentiments about the US economy have been strained.

“We’re definitely going to see some reductions in gasoline prices at the pump,” Tom Cluza, head of the oil price information service, told CNN on Friday, adding that the relief would be “a feather-like, not a downside.”

After a relentless rise, the average national gas price finally settled at $3.41 a gallon, according to AAA. This is almost flat a week ago.

“It now looks as if the peaks of 2021 have been created,” Kloza said.

Insurance tensions

Unfortunately, one of the catalysts for Friday’s market crash is another ominous development on the Covid front: Austria announced plans on Friday. Imposing a national lockdown, the first in Europe this fall, in an effort to reverse the rise in Covid-19 cases.

The shutdown is raising fears in the oil market that tough new health restrictions elsewhere will slow the economic return and undermine energy demand.

“The demand signals today are significantly bearish,” Louise Dixon, chief oil markets analyst at Rystad Energy, wrote in a note on Friday. “The danger is real in Europe, especially if Austria’s move to shutdown has a domino effect across the continent. If Germany follows suit, sub-$80 price levels may still be here to stay.”

Will China and America unite?

Besides shutdown fears, oil markets remain jittery over the specter of US-China cooperation Intervene in the previously hot energy markets.
Since crashing to negative – $40 a barrel in April 2020, US crude has risen as much as $125 a barrel because supply simply hasn’t kept pace with demand. OPEC and its allies, known as OPEC+, have only gradually increased production. American oil companies She was in no hurry to add the show either.

A coordinated release from two of the world’s largest energy consumers would have a greater impact than if the Biden administration acted alone to cash in on the Strategic Petroleum Reserve.

Officials in China issued a statement on Friday noting that releasing barrels from the country’s emergency reserves is on the table.

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“The bureau is moving forward with work related to crude oil output at this time,” the authorities that oversee China’s strategic oil reserves said in a statement to CNN.

According to a reading released by the White House, US President Joe Biden and Chinese President Xi Jinping discussed during their virtual summit this week “the importance of taking measures to address global energy supplies.”

A coordinated release by the US and China could also be used as a bargaining tool to get OPEC+ to open the taps, after months of refusing to do so.

“There is firepower with a concerted effort,” said Robert Yauger, director of energy futures at Mizuho Securities.

short term repair

However, this is not a long-term solution, because freeing barrels from emergency reserves does not solve the fundamental mismatch between supply and demand. These emergency reserves contain a limited amount of oil – crude that is usually held for supply shocks, not a surge in demand amid an economic recovery.

Launching barrels today leaves reserves with less of a buffer for the next crisis, whether it’s a hurricane, a conflict in the Middle East, or another supply shock.

Goldman Sachs reiterated in a new report to clients Thursday that the coordinated issuance “will only provide a short-term fix for the structural deficit.”

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Wall Street argued that this coordinated release was now “fully priced,” which means the impact on the markets has already taken place.

“Indeed, if such a release is confirmed and manages to keep oil prices low in the context of low trading activity until the end of the year, it will create clear upside risks to our price forecasts for 2022,” Goldman Sachs strategists wrote.

In other words, some on Wall Street are already looking to get past this emergency intervention – before it happens – and anticipate higher prices in the future.

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