Oil futures: Crude up on Russian sanctions, market shrugs off Chinese data

16 May 2022

Quantum Commodity Intelligence - Crude oil futures Monday were climbing higher and comfortably up from earlier lows which came after weak data from China highlighted the economic impact of recent Covid restrictions, while markets remained volatile with Russian exports seen sliding further.

Front-month July ICE Brent futures were trading at $113.83/barrel (1945 GMT), compared to Friday’s settle of $111.55/b and Monday's earlier low of $108.84/b.

At the same time, June NYMEX WTI was trading $113.54/b, versus Friday’s settle of $110.49/b, as WTI outpaced Brent futures on the day. July WTI was up around 2.5% at $111.33/b. 

Germany indicated Monday it plans to halt Russian crude imports by the end of the current year even as the EU's proposal on wider sanctions remains stuck due to pushback by some member countries, most notably Hungary.

Austria, however, said it expects the EU to agree on the sanctions package in the coming days, Foreign Minister Alexander Schallenberg said on Monday.

New restrictions on buying oil from Rosneft also take effect this week, which is likely to impact exports further.  

“Tightening supplies in oil product markets sparked the rally, as the impact of the Russia-Ukraine war strengthens," said ANZ commodity strategist Daniel Hynes commenting on Friday's firmer prices, noting diesel exports from Russia continue to fall.

The wording of the latest EU sanctions exempts oil purchases from Rosneft or Gazpromneft, which are listed in the legislation, deemed as “necessary for ensuring critical energy supply” for Europe.

Trading firms have been unsure how to interpret what “necessary” means. It may cover an oil refinery receiving Russian oil through a captive pipeline, but it may not cover the buying and selling of Russian oil by intermediaries.

The volume of crude processed by China’s independent and state-owned refiners fell by a sharp 9% in the month of April compared to March levels, with output falling 10% on the year.

China also reported a sharp drop in retail sales and industrial production in April, with figures coming in worse than most analyst forecasts. Retail sales dropped by 11.1% in April from a year ago, while industrial production was down by 2.9% year-on-year.

Further highlighting the slowdown, China’s auto sales fell 48.1% versus last April, while property sales at China’s top 100 developers were down 58.6% year-on-year.

Shanghai will gradually begin reopening businesses from Monday, having been all but shut down for more than six weeks.

US and European gasoline cracks hit fresh records by the end of the week amid rising exports although there are initial signs that record retail pump prices are starting to hurt road fuel demand.