Breaking News
Investing Pro 0
New Year’s SALE: Up to 40% OFF InvestingPro+ CLAIM OFFER

Commodities Week Ahead: Oil at 11-Month Low Amid China Clashes Over COVID

au.investing.com/analysis/commodities-week-ahead-oil-at-11month-low-amid-china-clashes-over-covid-200537404
Commodities Week Ahead: Oil at 11-Month Low Amid China Clashes Over COVID
By Barani Krishnan/Investing.com   |  Nov 28, 2022 21:14
Saved. See Saved Items.
This article has already been saved in your Saved Items
 
 
LCO
-1.30%
Add to/Remove from a Portfolio
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
CL
-2.01%
Add to/Remove from a Portfolio
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
ANZ
+1.54%
Add to/Remove from a Portfolio
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
ANZ
+1.23%
Add to/Remove from a Portfolio
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
  • COVID lockdown protests demand new government in China
  • Chinese implied oil demand seen down 1 million bpd, less buying from Russia too
  • Fed seen closely watching US November jobs report to decide next rate hike

Fierce protests against COVID lockdowns in top oil importer China are putting greater pressure on crude prices amid what’s already a week of strained nerves for traders awaiting monthly US jobs numbers that could decide the next Federal Reserve rate hike.

Oil Daily
Oil Daily

London-traded Brent, the global benchmark for crude, inched towards a test of its $80 per barrel support while New York-traded West Texas Intermediate (WTI), which serves as the US crude futures gauge, hovered near the lower end of $70 per barrel. 

By 14:00 local Singapore (06:00 GMT), both benchmarks were down about 3% each, adding to WTI’s near 18% drop and Brent’s 17% slump over three previous weeks.

Hiroyuki Kikukawa, general manager of research at Nissan Securities, said in comments carried by Reuters:

“On top of growing concerns about weaker fuel demand in China due to a surge in COVID-19 cases, political uncertainty, caused by rare protests over the government's stringent COVID restrictions in Shanghai, prompted selling."

“Step Down, President Xi!”

Protests erupted in cities and on campuses across China this weekend as frustrated and outraged citizens took to the streets in a stunning wave of demonstrations against the government’s “Zero-COVID” policy and the leaders enforcing it, The Washington Post reported. Residents in Shanghai, China’s most populous city, went from chanting, “We want freedom!” and “Unlock Xinjiang, unlock all of China!” to “Xi Jinping, step down!” and “Communist Party, step down!” as public anger mounted, the Post said.

Expectations for a recovery in Chinese oil demand are fading as daily COVID cases have hit record levels, spurring officials to step up containment measures and movement curbs. According to Australia-New Zealand bank ANZ (ASX:ANZ) (NZ:ANZ), the surge in new infections has already affected mobility and fuel demand in China, with implied oil demand seen lower by 1 million barrels daily than average, at 13 million barrels per day (bpd).

Amid the challenging backdrop, some Chinese refiners are also refraining from buying cargoes of a favored Russian grade, cutting demand just as traders wait for more details on a Group of Seven (G7) nations' plan to cap Russian oil alongside European Union (EU) sanctions that start on Dec. 5.

Diplomats from the two sides have been discussing a Russian oil price cap at between $65 and $70 a barrel but have been unable to reach an agreement, Reuters reported.

The aim of the G7 and EU is to limit the revenue from oil that could fund Moscow's military offensive in Ukraine without disrupting global oil markets, but the proposed level is broadly in line with what Asian buyers are already paying.

“So long as the suggested cap on Russian oil remains higher than what the market initially thought, the general impression is the Kremlin will react less adversely in terms of limiting its exports and production,” John Kilduff, founding partner at New York energy hedge fund Again Capital, told Investing.com.

“That would be a negative for oil.”

Despite the extremely bearish outlook for oil through November, those long crude expect prices to rip higher in anticipation of remedial action by the OPEC+ when it meets Dec. 4.

OPEC+—which groups the Saudi-led 13-nation Organization of the Petroleum Exporting Countries, with 10 oil-producing allies steered by Russia—is to meet on Dec. 4. The alliance already has in place an agreement to cut production by 2 million bpd till end of next year to boost Brent and US crude prices, which have fallen some 40% from their March highs.

Last week, Saudi Energy Minister Abdulaziz bin Salman indicated that OPEC+ will likely add to the 2 million bpd cut when it meets the coming weekend.

While further drop in US crude prices cannot be ruled out, the extent of any downside should be limited to the 200-month Simple Moving Average (SMA) of $72.50 and the 50-month Exponential Moving Average (EMA) of $71, said Sunil Kumar Dixit, chief technical strategist at SKCharting.com.

“These levels may defend WTI against sell off and provide uplift to broken support turned resistance zone,” Dixit said.

He said a closer look at WTI’s price action indicated a “great deal of possibility” for a short-term rebound from the support areas of $72 and $70. 

If this upside were to extend, then WTI could target the 100-Week SMA of $81.50 and the 50-Day EMA of $85.50, followed by the 50-Week EMA of 89.50, Dixit added.

Friday’s US jobs report for November will be the main highlight of the coming week as investors remain hopeful that the Fed will soon slow the pace of rate hikes. 

Remarks by Fed Chair Jerome Powell at the Brookings Institution on Wednesday will be closely watched. Eurozone inflation data will also be in the spotlight, as will China PMI data amid concerns over the resurgence of COVID cases there. 

Expectations that the Fed may soon slow the pace of its aggressive rate hikes were boosted by last week’s minutes from the central bank’s November meeting. Friday’s US jobs report for November will put those expectations to the test.

Economists are expecting the US economy to have added 200,000 new jobs, in what would be the smallest increase since December 2020.

The jobs report is also expected to show that growth in average hourly earnings is moderating, while the unemployment rate is expected to hold steady just above a five-decade low at 3.7%.

It will be the last nonfarm payrolls report before the Fed’s final meeting of the year in December.

But investors have reason to remain cautious—five of the last six jobs reports have come in better than forecast and another strong reading could spell trouble for US stocks.

While Powell has indicated that the Fed could shift to smaller rate hikes next month, he has also said rates ultimately may need to go higher than policymakers thought would be needed by next year. Meanwhile, St. Louis Fed President James Bullard and New York Fed President John Williams are both due to make appearances on Monday.

The economic calendar also features the ISM manufacturing PMI and the Fed’s favored measure of inflation—the core PCE price index—both of which are published on Thursday.

Other reports during the week include ADP nonfarm payrolls, initial jobless claims, consumer confidence and the Fed’s Beige Book.

Disclaimer: Barani Krishnan uses a range of views outside his own to bring diversity to his analysis of any market. For neutrality, he sometimes presents contrarian views and market variables. He does not hold positions in the commodities and securities he writes about. 

Commodities Week Ahead: Oil at 11-Month Low Amid China Clashes Over COVID
 

Related Articles

Naeem Aslam
Gold to Retreat, Oil Eyes OPEC Meet By Naeem Aslam - Jan 27, 2023

Gold Gold prices are on track to post losses this week, mainly for two reasons. Firstly, this week, we have seen strong US economic data, which indicates that the US economy is...

ING Economic and Financial Analysis
The Commodities Feed: Natural Gas Under Pressure By ING Economic and Financial Analysis - Jan 26, 2023

While European gas prices continue to edge lower, US natural gas prices have also come under pressure, falling to their lowest levels since May 2021. Energy - US Natural Gas Falls...

Commodities Week Ahead: Oil at 11-Month Low Amid China Clashes Over COVID

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind: 

  • Enrich the conversation
  • Stay focused and on track. Only post material that’s relevant to the topic being discussed.
  • Be respectful. Even negative opinions can be framed positively and diplomatically.
  •  Use standard writing style. Include punctuation and upper and lower cases.
  • NOTE: Spam and/or promotional messages and links within a comment will be removed
  • Avoid profanity, slander or personal attacks directed at an author or another user.
  • Don’t Monopolize the Conversation. We appreciate passion and conviction, but we also believe strongly in giving everyone a chance to air their thoughts. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Continue with Google
or
Sign up with Email