For millions of people around the world, the cost of filling up a car, heating a home, or running a business is once again in flux. On Monday, oil prices climbed by as much as 2%, a shift that will be felt at the pump and on household energy bills. The increase comes as a result of OPEC+ countries maintaining their output objectives, ahead of a European Union ban and the start of a price restriction on Russian crude.
Meanwhile, in China, a patchwork easing of COVID-19 curbs caused confusion across the nation on Monday, as more cities relaxed restrictions over the weekend—a bullish indication for gasoline demand that could further impact global prices. U.S. West Texas Intermediate (WTI) crude futures climbed 70 cents, or 0.9%, to $80.68 a barrel.
Brent crude prices were last up 72 cents, or 0.8%, to $86.29 a barrel. The driving force behind these gains is OPEC+, the group that includes the Organization of the Petroleum Exporting Countries, its allies, and Russia. OPEC+ decided to continue its October agreement to reduce output by 2 million barrels per day.
According to analysts, the OPEC+ decision came as major producers awaited the effects of the EU import restriction and the Group of Seven (G7) $60 per barrel price cap on Russian oil carried by sea. Russia has threatened to reduce supplies to any nation that adhered to the quota.
Over the weekend, OPEC’s output stayed constant.
Analyst Perspectives on Market Balance
Baden Moore, head of commodity analysis at National Australia Bank, predicted that the organization will keep the market in balance. He said, referring to the U.S. strategic petroleum reserve, “(A) Roll-off of the SPR releases. And implementation of the EU sanctions and price ceiling act to tighten the market.
Although we’d assume the market has already positioned for this view.” Another analyst, Hittle, noted the complex forces at play. “Despite the EU oil import restriction on Russian crude and the G7 price ceiling.
The prices are currently being held down by prospects of poor demand growth. The modification to the EU ban and price cap is probably going to support prices for a little while,” Hittle remarked. Hittle also noted that the market’s lack of diesel and heating oil should help support crude demand, despite the EU’s impending embargo on Russian oil products beginning on February 5.
China’s Shifting COVID Policies and Demand Outlook
China’s zero-COVID policy has been a major factor limiting demand for oil globally. But it now appears to be weakening as a result of protests and various localities loosening restrictions to differing degrees. Over the weekend, more Chinese cities relaxed COVID-19 curbs, though the patchwork easing caused confusion across the nation on Monday. For global energy markets, any uptick in Chinese demand would be a significant factor.
Looking ahead, the key items to watch are the implementation of the EU sanctions and G7 price cap on Russian crude, which are set to tighten the market. Additionally, the ongoing adjustments to China’s COVID policies will be a major determinant of future demand. The market is also closely monitoring the February 5 deadline for the EU embargo on Russian oil products, which could further affect the supply of diesel and heating oil and, in turn, support crude prices. For consumers and businesses alike, the coming weeks will reveal whether these factors lead to sustained price increases or a period of volatility.
