Oil prices crash by more than 7% on demand destruction fears, OilPrice reports.

The International Energy Agency has warned that, despite the current energy crisis being potentially the worst ever, it is still far from being over. International attention has shifted from oil markets, which have seen prices crash back below $100, to natural gas, where a perfect storm is shaping up ahead of the 2022/2023 winter season. While IEA chief Fatih Birol extolled the importance of clean energy, he warned of reliance on China as Beijing is set to control 95% of the global supply chain for solar by 2025. In addition to the above, the strength of the US dollar, which has risen to 20-year highs and reached parity with the euro, will keep commodities under pressure.

The triple whammy of demand destruction, high inflation, and recurrent Covid woes in China sent oil prices crashing, with WTI falling more than 7%. Even OPEC, the stalwart of market bullishness, acquiesced to expectations of weaker demand coming ahead from recessionary pressures and lowered its 2023 demand growth forecast to 2.7 million b/d. However, even this prediction is predicated on no escalation around Ukraine and China rising above its lockdown blues, which, considering that some 30 million people there are still under restrictions, might turn out to be overly optimistic.  

US President Biden faces limited Saudi options. Despite assurances from national security adviser Jake Sullivan that US President Biden will push for more oil production, a lack of immediate spare capacity in Saudi Arabia and the UAE would make oil-related discussions somewhat awkward. US oil company ConocoPhillips might see a reversal of its Alaskan project fortune as the Biden Administration is reportedly looking into ways to unlock the $3 billion Willow project, blocked in 2020 by a district court. 

Hedge funds increasingly move out of oil, OilPrice said. Amidst widespread recession fears, hedge funds and other money managers have been quitting their oil positions at one of the fastest rates in the post-pandemic period, selling a total of 201 million barrels in the past four weeks.