WTI surges back above $100 per barrel as focus returns to Russia supply shortage, China fears ebb

• Oil prices have seen a strong rebound on Thursday, with front-month WTI futures surging nearly $8.0 to the $102s.
• While prices are still $27 below last week’s highs, Thursday’s rally may signal an end to the recent bear run.

Oil prices have seen a strong rebound on Thursday, with front-month WTI futures surging nearly $8.0 (or over 8.0%) from under $95.00 per barrel to current levels in the $102.00s. That means WTI has now been able to erase more than 50% of this week’s losses that at one point saw it trading more than $15.0 lower in the $93.00s and is now down under $7.0 on the week. That still leaves prices about $27 below last week’s highs, but Thursday’s rally may signal an end to the near-non-stop selling pressure of the past six sessions.

As for the catalysts behind Thursday’s rally, there hasn’t been one clear headline or factor driving the rebound, but analysts have put forth a number of explanations. Firstly, uncertainty regarding whether or not Russo-Ukrainian peace talks can actually come up with a ceasefire to end the increasingly brutal war remains highly elevated. Conflicting reports with various news outlets citing different sources make it difficult for investors to unpack what’s actually going on.

That is helping to keep a high degree of geopolitical risk premia priced into energy markets amid uncertainty about what will happen to Russia’s vast exports. On this topic, the International Energy Agency on Wednesday warned that while higher oil prices will probably destroy about 1M barrels per day in demand, the loss in Russian supply would be far greater. Morgan Stanley came to a similar conclusion in a note out on Thursday, with analysts at the bank predicting a 1M barrel per day drop in Russian oil output from April which would more than offset a 600K barrel per day downward revision to global demand.

Separately, concerns about lockdowns in China eroding oil demand there have eased a touch as Covid-19 cases start to fall back again and sentiment in Asia markets has been given a massive boost by recent announcement from Chinese officials of new policy support. “China fears” were a big reason why WTI fell back under $100 per barrel earlier in the week and so as they fade, it makes sense to see oil rebounding.

As for what lies ahead for oil markets, geopolitics remains the main big risk. If a peace deal does suddenly look highly likely and is on the cusp of being announced, this is a big downside risk for prices, which could be easily sent tumbling back below earlier weekly lows in the $93.00s. Meanwhile, Covid-19 risk in China remains worth monitoring to see whether authorities there can get things back under control.