West Texas Intermediate closed Thursday above $103 a barrel in a week that has seen futures swing in a $10 range. The Biden administration unveiled a fresh arms package for Ukraine as the war there drags on. The White House has also banned the entry of Russian ships to U.S. ports. Meanwhile, European Union members are moving to cut dependence on Russian oil, with German Foreign Minister Annalena Baerbock saying the country plans to stop imports by year-end.

Oil has been hugely volatile since the outbreak of war. After spiking above $130, prices have retreated amid a liquidity crunch, with traders fleeing the market in the face of extreme volatility and onerous margin calls. Open interest in WTI futures continues to fall, indicating that the pullback in activity is ongoing.

“The oil market continues to be characterized by a tug-of-war between concerns about demand and concerns about supply outages,” said Carsten Fritsch, an analyst at Commerzbank AG. “This is also evident from the constant fluctuations in oil prices.”

Separately, the U.S. Energy Department said it sold all 30 million barrels of mainly sour oil from its Strategic Reserve that it offered in a tender. Twelve companies were awarded supplies.

Russian output has fallen, though exports are only now startubg to shrink. Protests in Libya are hurting supply and repairs to a key Kazakh export route are dragging on.

For prices to move higher, Russian exports would have to drop, said said Giovanni Staunovo, a commodity analyst at UBS Group AG. “I still expect it to come but so far Russian exports are still high.”

In China, officials are struggling to eradicate a wave of Covid-19 in key cities. Strict curbs have hurt mobility, including for the nation’s fleet of trucks, and banks are reducing their forecasts from the nation’s expansion this year. President Xi Jinping told a local forum that while economic fundamentals remain strong, “we have yet to walk from the shadow”of the pandemic.

Other corners of the globe are seeing indications of robust fuel demand though. On Wednesday the 3-2-1 futures crack spread in the U.S. — a measure of the profitability of turning crude into gasoline and diesel — shot up to the highest level in records going back to 1986. In Europe, France’s oil-product sales were above pre-Covid levels in March.

Global oil prices have been pulled higher by a tighter supply outlook after sanctions against Russia – the world’s second-largest oil exporter and a key European supplier – over its invasion of Ukraine, which Moscow calls a “special operation.” However, a softer global economic outlook and continuing coronavirus lockdowns in China have hurt demand in the world’s top crude importer and are weighing on prices.

On the supply side, the Organization of the Petroleum Exporting Countries and its allies, known collectively as OPEC+, produced 1.45 million barrels per day (bpd) below its production target in March as Russian output began to decline after sanctions imposed by the West, a report from the producer alliance showed. Various outages added to concerns about supply. OPEC member Libya has been forced to shut in 550,000 bpd of output because of a wave of blockades on major oilfields and export terminals, the country’s National Oil Corporation (NOC) said on Wednesday.

In the United States, crude stocks fell by 4.5 million barrels last week, according to market sources citing American Petroleum Institute figures on Tuesday.

The European Commission is working to speed up availability of alternative energy supplies to try to cut the cost of banning Russian oil and persuade Germany and other reluctant EU nations to accept the measure, an EU source told Reuters.

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West Texas Intermediate fell more than $5 to settle below $103 on Tuesday, the sharpest drop in more than a week. The IMF slashed its world growth forecast by the most since the early months of the Covid-19 pandemic and projected even faster inflation. The market opened on a downbeat after Fed Reserve Bank President James Bullard said late Monday the central bank needs to move quickly to raise interest rates to quell inflation.

China’s health officials said the Covid Zero approach will continue, with the country deploying strict lock downs that are snarling up the world’s second-largest economy. Recent data shows China’s economic growth slowing, which has heightened concerns about demand falling in one of the world’s biggest crude importer.

“It’s a fairly supplied market for now and one which doesn’t look like we’re in crisis mode at this point, but one where we do need to get more production,” said Rob Haworth, senior investment strategist at U.S. Bank Wealth Management.

Still, production issues in Libya are providing a bullish element to the market. The nation’s oil output has fallen to about 800,000 barrels a day. The Sharara field in the west of the country, which can pump 300,000 barrels a day, has been closed as protests spread.

Oil has advanced more than 40% this year as Russia’s invasion of Ukraine upended an already tight supply-demand balance. The war is rerouting global crude flows, with the U.S. and U.K. moving to ban the import of Russian barrels, while some Asian buyers take extra cargoes. As the war drags on, there’s mounting pressure on the European Union to curb its imports.

French Finance Minister Bruno Le Maire said Tuesday that it’s “more than ever” necessary to stop oil imports from Russia, reflecting the debate within the energy-dependent bloc about the merits of restricting flows. France hoped to convince EU partners “in coming weeks,” Le Maire told Europe 1 Radio. A full and immediate ban on Russian oil could push crude to $185 a barrel, JPMorgan said in a report.

The impact of the coronavirus pandemic on China’s economy is short term and normal conditions will be rapidly restored after the current outbreak is contained, a spokesperson for the top economic planner said on Tuesday. That came a day after the central bank moved to aid individuals and small businesses.

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Oil futures finished higher on Thursday after a report said European Union officials were drafting a measure to ban Russian oil. Thursday’s gain contributed to a nearly 9% climb in crude prices for the holiday-shortened week.

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“The spread of Covid in China is the most bearish item affecting the market,” said Andy Lipow, president at Lipow Oil Associates. “If [Covid] spreads throughout China resulting in a significant number of lock downs, the impact on oil markets could be substantial.” China is the world’s largest oil importer, and the Shanghai area consumes roughly 4% of the country’s crude, according to Lipow.

The potential hit to demand comes as the supply side of the equation has been front and center given Russia’s role as a key oil and gas producer and exporter.

Last week the International Energy Agency announced that its member countries would release 120 million barrels from emergency stockpiles, of which 60 million barrels would be from the U.S. The announcement followed the Biden administration saying it would release 180 million barrels from the Strategic Petroleum Reserve in an effort to alleviate soaring prices. WTI fell 1% last week while Brent declined 1.5%, with both contracts posting their fourth negative week in the last five.

Oil prices have been on a roller-coaster ride since Russia invaded Ukraine. WTI briefly traded as high as $130.50 on March 7, the highest level since July 2008. The contract has fallen nearly 30% since. Brent meantime spiked to $139.13 in March. Part of the move is thanks to fears over what a disruption in Russian supply would mean for an already tight market. The IEA previously predicted that three million barrel per day of Russian oil output was at risk.

Traders also attributed oil’s wild swings to non-energy market participants exchanging contracts as a way to hedge against inflation, among other things. Still, Wall Street firms were quick to point out that tapping emergency oil stockpiles will alleviate the price spike in the near-term, but doesn’t address the fundamental issues in the market. ″Some of the market tightness caused by the self-sanctioning of Russian crude buyers — either in fear of future sanctions or for reputational reasons — should ease,” UBS wrote in regards to the emergency releases. “But it will not fix the the oil market’s structural imbalance resulting from years of under investment at a time of recovering global demand,” the firm added.

Oil futures ended higher Friday, but logged a second, consecutive weekly decline as several countries joined the U.S. in releasing crude reserves.

Price action

• West Texas Intermediate crude for May delivery rose $2.23, or 2.3%, to close at $98.26 a barrel on the New York Mercantile Exchange, leaving the U.S. benchmark with a weekly fall of 1%.
• June Brent crude, the global benchmark, gained $2.20, or 2.2%, to finish at $102.78 a barrel on ICE Futures Europe, leaving it with a weekly drop of 1.5%.
• May natural-gas futures fell 1.3% to $6.278 per million British thermal units, after ending Thursday at a 13-year high. The fuel logged a nearly 10% weekly rise.
• May gasoline rose 3% to $3.132 a gallon, while May heating oil rose 1.5% to $3.3176 a gallon.

Market drivers

Crude has seen volatile trade since Russia’s late-February invasion of Ukraine, with the U.S. benchmark briefly trading at a roughly 14-year high above $130 a barrel in early March, while Brent came within a whisker of $140. WTI had closed at $92.10 a barrel on the eve of the invasion on Feb. 23, while Brent had traded at $94.05.

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