By Bhavik Patel

Oil price is trading at 2022 low as sentiment in the oil market is extremely bearish. The saving grace for bulls was supposed to be price cap on Russia’s inbound crude via sea but that has also not stirred interest from buyers. Even China’s lax and ease in covid restrictions have failed to generate any bounce in crude oil. Last week US inventory came much lower than expected and we saw brief bounce following the report but after that selling continued.

One of the reasons for bearish sentiment is worries about more aggressive monetary tightening by the Federal Reserve. Oil traders have been anxiously waiting to see how the price cap on Russian oil will affect the market, but the measure is yet to impact prices. Data from Monday showed that US ISM service sector climbed higher which spooked the market that Fed may keep rates higher for longer increasing the odds of recession and demand destruction of energy use. Market still has remained undersupplied as with price cap, there are chances of cut in Russian production owing to reduction in crude tanker and insurance. OPEC+ will continue to produce less and US has to fill their strategic petroleum reserve in future.

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According to one commodity-analytics firm Kpler, Russia’s seaborne exports fell by nearly 500,000 barrels per day on Tuesday, a 16% decline from the November average of 3.08 million bpd. Stanchart has also made similar suggestion that Russia’s crude production is set to fall sharply in the coming year, noting that the key unknown is whether Russia can transport oil to its major consumers (including providing adequate insurance) without using EU or other G7 services.

Now when China will open, there will be massive pent up demand that will push prices higher. The shutdown of the major oil pipeline that carries crude from Canada triggered volatility in the energy market on Thursday, with oil prices briefly surging as much as 5% before retreating and again falling back below 6000 in MCX.

(Bhavik Patel is a commodity and currency analyst at Tradebull Securities. Views expressed are the author’s own.