How China and the Russian Embargo are Pushing Up the Price of Oil

A mix of factors has pushed the price of Brent oil to over $120 a barrel. Europe’s oil embargo is only one of them even more important is the probably strongly increasing demand in China. After two months, the Corona lockdown in Shanghai is gradually coming to an end.

The turmoil is back on the markets. At the beginning of the week, the oil price rose to its highest level in two months – the commodity now costs as much again as it did shortly after the attack on Ukraine began. The price of Brent crude rose to well over 120 US dollars per barrel on Tuesday. That was about 20 dollars more than in the middle of the month. One of the price drivers is the agreement on an oil embargo with restrictions by the EU states against Russia but in addition there are now other concerns.

Oil shortage and Russia embargo

In March, when the Brent price last cracked the 120 dollar mark, concerns about supply restrictions dominated the oil market. Russia, as one of the most important suppliers, was threatening to drop out, although there was no explicit embargo on Russian oil at the time. Internationally, commodity traders sanctioned themselves and avoided imports from the country, while the producing countries in the OPEC+ alliance postponed the expansion of production. The release of reserves was intended to stabilize prices in the short term.

Now concerns about an oil shortage are boosting oil prices again. How hard the EU sanctions against Russia will hit the market is still unclear. But it is already clear that demand will increase strongly. News from China in particular is seen as a price driver. The world’s second-largest economy is easing restrictions to combat the pandemic. From the beginning of June, the lockdown in the economic metropolis of Shanghai will end after two months, and companies and closed factories will be allowed to resume production. China’s authorities also declared that the covid outbreak in the capital Beijing is under control.

World oil demand just keeps on rising

This is likely to have a short-term impact on global oil demand. China is the world’s largest importer of crude oil. President Xi Jinping’s (68) adherence to his zero covid policy (details here) at all costs had weighed heavily on the Chinese economy and its trading partners, dampening energy demand worldwide. With the economy and private consumption picking up again, these quantities should soon be needed on the market again.

The comeback in China comes at a time when demand is also picking up noticeably in parts of the rest of the world. Accordingly, petrol prices in the USA climbed to record levels.