The executive director of the IEA, Fatih Birol, warned that given the current supply and demand situation, there is only one thing that can stop prices from surging higher and that is Chinese demand remaining weak over the upcoming months, OilPrice reports. 

According to Platts estimates, China’s April demand plummeted to 13.35 million b/d, down 11.5% year-on-year, though recovering transportation demand will push May figures back above 14 million b/d. At the peak of lockdown mandates, gasoline and diesel demand in coastal regions dropped by as much as 40%, with a grand total of 45 cities with some form of movement restrictions. The market anticipates strong stimulus measures from Beijing that would increase China’s oil demand by 4% year-on-year, adding 600,000 b/d on the year in the second half of 2022, though this might still be subject to downward revision if the zero-COVID policy remains in place. 

The combination of physical tightness and robust demand is keeping oil prices near the $110 mark. This week, gasoline prices are likely to garner plenty of attention as inventories continue to drop and US drivers gear up for Memorial Day weekend travel. This is all coming at a time when RBOB futures are seeing record-high levels of backwardation. The Biden Administration is mulling an emergency release of diesel inventories held in the Northeast Home Heating Oil Reserve, roughly 1 million barrels, to tame soaring fuel prices as the national average price of diesel reached $5.56 a gallon.

Brazil’s state-controlled oil firm Petrobraswill reportedly invest $16 billion over the next five years to stall natural declines at post-salt fields in the Campos Basin, despite increasing pressure from President Bolsonaro to tame runaway fuel prices. Jair Bolsonaro, the president of Brazil, fired the CEO of a Petrobras – the second in two months – after he warned of an impending diesel crisis in the country.