• Oil prices have stabilised on Tuesday with WTI near the $100 level as traders mull geopolitics and China lockdown risks.
• WTI has stayed within $10 of the $100 mark since the start of April.

Oil prices have seen stabilising on Tuesday following Monday’s choppy trading conditions, as traders weigh China lockdown risks against a still very tense geopolitical backdrop as Western arm shipments in Ukraine continue and the EU mulls fresh sanctions. Front-month WTI futures rallied back to, but were unable to hold above, the $100 per barrel mark, and at current levels in the mid-$99.00s, trade with on the day gains of a little over $1.0.

An FT report on Tuesday suggested the EU is mulling imposing a price cap on what it pays Russia for oil imports, after reports over the weekend the EU is looking at various “smart sanctions” that would inflict maximum damage on Russia whilst minimizing the impact on the Eurozone. Either way, risks remain tilted towards greater disruption to Russian supply, not less, with various analysts thinking Russian output will have declined by as much as 3M barrels per day by the start of next month versus pre-war levels.

But WTI prices remaining in the red on the week, as the cloud of uncertainty relating to Chinese demand amid a growing risk of more major cities going into lockdown continues to hang over the market. A Bloomberg report at the end of last week estimated that as much as 10% of Chinese demand might already have been lost as a result of the lockdowns in China and Beijing could be next, with all 22M residents now partaking in mass testing that could result in strict lockdowns in some districts.

Looking ahead, geopolitics and Russian energy sanctions, the demand situation in China, plus other themes like OPEC+ output struggles and US/Iran nuclear deal talks will remain key driving forces in the market. Since the start of April, WTI has stayed within at least $10 of the $100 level and that seems likely to remain the case in the coming days, provided the situation in China doesn’t significantly worsen. In this scenario, a break lower towards $90.00 would be on the cards.