Oil hits one-year lows as China faces protests

Oil prices are back to levels seen in January 

Monday saw a near-record low for this year for oil prices. Uncertainty over the forecast for fuel demand was sparked by street demonstrations against strict COVID-19 regulations in China. Since China is the largest petroleum importer in the world, this uncertainty remains a big market mover.

Brent crude was trading at $80.92 per barrel, down $2.71 or 3.2%. After reaching its lowest level since December 22nd of last year at $73.60, U.S. West Texas Intermediate crude fell $2.31, or 3%, to $73.97. Both benchmarks have experienced weekly drops for the last three weeks after last week’s 10-month lows.

The markets were erratic ahead of this weekend’s OPEC+ meeting and the impending G7 price restriction on Russian oil. The zero-COVID policy of President Xi Jinping has been maintained in China despite the majority of the globe having removed most restrictions.

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On Sunday night, hundreds of protesters and police battled in Shanghai. Demonstrations over the restrictions erupted for a third day and extended to several cities. On December 4th, the Organization of the Petroleum Exporting Countries (OPEC) and its allies, which includes Russia, will meet again. OPEC+ decided to cut its daily output target by 2 million barrels in October.

Diplomats from the Group of Seven (G7) and the European Union have been debating a price ceiling on Russian oil. So far, the forecast is between $65 and $70 per barrel. This is an effort to limit the amount of money used to support Moscow’s military incursion in Ukraine while avoiding any disruptions to the world’s oil markets. 

There was disagreement among EU states over how high to set a cap on Russian oil prices, which could have had a limited effect. Setting the cap too low would mean no effect in Russia, since the price is already below the cap.

WTI brief technical analysis

WTI continued its last sessions’ downward crash. The trend remains bearish with new one-year lows. The following support could be found at the lower trendline of the bearish channel, currently slightly above $73. If it holds, bulls could push the price towards last week’s $79, or potentially hitting the psychological level of $80, where the upper trend line of the bearish channel is also located.

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In case the bears keep selling, oil prices will not hold the support of $74.4. The price could be falling to as low as $65, a price seen last December. Since the price has been declining sharply, the market could be oversold, implying a possible short-term correction higher.

WTI oil chart. Source: Author’s analysis, Tradingview.com