As daily COVID cases swung above 40,000 in China this week, a series of public protests calling for the relaxation of Beijing’s stringent lockdown policies has rocked the country, sending oil prices into a tailspin that was halted only by news of potential OPEC+ cuts. 

Whilst this week started off with a commodity-wide selloff, driven by concerns about Chinese protests damaging demand even further, by now that sentiment has shifted into a tacit anticipation of good news coming our way. There is hope that the anti-lockdown protests will force Beijing to ease its strict zero-COVID policy and allow for more of the unrestricted growth that we have gotten used to over the past years. With OPEC members having dispelled rumors that they might boost production, the market is now considering the possibility of another OPEC+ cut – sending Brent back above $85 per barrel. 

The global Brent benchmark sunk to its lowest level since early January this week, almost dropping below $80 per barrel, as China protests unsettled investors that were still hoping for demand growth.

A more balanced supply/demand outlook has triggered the first contango seen in the futures markets since late 2020, with the slight upward trend in the front months of Brent, WTI, and Dubai making it profitable again to store oil.

Less than one week before its nominal start, the European Union has so far failed to agree on a price cap level on Russian crude, with the markets starting to believe there will not be a substantial disruption in Russian flows come 2023.

At the same time, liquidity in the key contracts traded is wafer-thin as last week’s volatility prompted the sell-off of an equivalent of 90 million barrels, with open interest in WTI falling to the lowest since 2015.