WTI slides back to mid-$101.00s amid China slowdown fears

• WTI has fallen back to the mid-$101.00s on Monday, down over $2.50 amid China demand concerns after weak data.
• But concerns about Russian output with the EU close to agreeing an oil import embargo may keep prices above $100.

Even though the EU looks set to agree on ending all Russian oil imports by the end of the year (aside from perhaps to Slovakia and Hungary) as soon as Tuesday, a move which is likely to exert further downwards pressure on Russian production, oil prices trade with significant losses at the start of the week. Having come within about $1.0 of its mid-April highs just above $109.00 per barrel last Friday, front-month WTI futures have reversed just over $2.50 lower on Monday to trade in the mid-$101.00s.

Traders are citing concerns about weakening economic growth in China as weighing on prices at the start of the week following the release of significantly worse than expected official April PMI survey results over the weekend. Some also cited some newsflow about the resumption of production in various oilfields located in Libya as potentially also weighing on prices. Libyan output was disrupted to the tune of 500K barrels per day in April by blockades, as the country continues to struggle with internal instability.

For the time being, so long as Chinese demand fears don’t significantly increase again in the coming days (new lockdowns could trigger this), concerns about Russian supply as the EU looks to tighten sanctions on the country following its invasion of Ukraine might be enough to keep WTI supported above the $100 mark. According to Reuters, around half of Russia’s 4.7M barrels per day in exports goes to the EU and, while some of this can be redirected to other markets at a discount (like too India), “Russia’s ability to redirect all unwanted cargoes from the West to Asia is limited,” said one analyst.

“In the case of embargoes, Russia will be forced to cut production further as it lacks storage capacity for extra crude volumes,” they continued. Russia’s sanctions-related supply woes come at a time when many OPEC+ nations were already struggling to increase output in line with the group’s recent series of output quota hikes. According to a Reuters survey, the group’s output rose by just 40K barrels per day in April, well below the 400K targeted rise, pushing the group’s compliance with its output cut pact to 164% (up from 151% a month earlier). Massive OPEC+ underproduction is another reason why WTI above, or at least near, $100 continues to make sense in the near term.