Select Page

Oil prices went a strong NOWHERE today, June 1, as the oil market struggled with news of the end of lockdowns in China, which would lead to higher demand, and speculation that OPEC would act to increase production.

U.S. benchmark West Texas Intermediate closed up 0.06% to $114.74 a barrel. International benchmark Brent crude rose 0.17% to $115.80.

Yesterday, May 31, Shanghai, China’s financial capital, reported the fewest Covid-19 cases–just 15 new infections–in three months. Most of the city’s 25 million residents have now been released from a restrictive pandemic lockdown that lasted two months (10% of residents still aren’t allowed to move about the city) and brought many factories and offices to near shutdown. In Beijing officials announced that a Covid outbreak has been effectively controlled and that they are considering measures to stimulate consumption after shopping malls and entertainment venues were shut last month.

The end of Covid lockdowns in China, which at the high restricted activity for about 350 million people, will result in higher demand for oil and refined petroleum products.

Which would push oil prices higher.

Meanwhile on the supply side, the Wall Street Journal reports that OPEC is considering exempting Russia from the OPEC+ oil-production agreement. Russia is one of the world’s top three crude producers–along with Saudi Arabia and the United States–but it’s struggling to maintain output and exports in the face of increasing sanctions. Removing Russia from the monthly supply quota system, would give other OPEC+ members, especially the Saudis and United Arab Emirates, room to pump more oil.

That would add to supply.

Which would push oil prices lower.

The odds for some OPEC moves to increase supply are reasonably high because Saudi Arabia and the United States have been talking about a visit from U.S. President Joe Biden to patch up tattered diplomatic relations. An announcement of increased production is exactly the kind of gesture I’d expect before such a visit.

The likely result of all this is that oil will stumble around near current levels–and perhaps even move a tad lower–or a while due to uncertainty on the supply story. No trader wants to get blindsided by news of increased production. In the slightly longer term, the story shifts, though, to increased demand from