Week in Review – April 1, 2022

This week prices fell on Chinese demand concerns, dominos started to fall as the Russian aggression in Ukraine continues, Putin warned of new method of export pricing, and Biden plans another strategic petroleum release. On Monday it was reported that Shanghai, China’s financial hub, initiated a new lockdown in two stages due to COVID-19. With the government closing tunnels and bridges and restricting highway traffic, over 26 million people are affected by the lockdown. With China being the world’s second-largest economy, the lockdown has inspired fear for consumption, negatively impacting commodity prices. The lockdown will be in effect for at least nine days. Many citizens of Shanghai have now begun to stockpile food, fuel, and other living necessities with the fear that this lockdown may just be a glimpse of what is to come if the situation worsens.

Dominos started to fall this week as Russian aggression continued in the east. While the United States and other western countries are struggling to keep pace with demand, Kazakhstan crude production has been declining in recent days, which could spell out problems for the East going forward. With Kazakhstan set to lose around a fifth of their oil production this month from the pipeline damage, coupled with Russian oil sanctions impacting fuel supply and demand, the future does not look promising. Russian peace talks later in the week did not prove to hold any substantial value as major bombings of cities around Kyiv continued and the death toll rises.

In an attempt to make business painful for the West, Vladimir Putin has warned that all oil and gas exports going forward could be priced in rubles. On March 23, Putin announced that all gas exports to “unfriendly countries” must be purchased in rubles, but he has now threatened to extend that decision to include all energy and commodity exports after his top law makers urged him to do so. By forcing countries to purchase rubles to buy gas, the move supports Russia’s cratering currency and will slightly reduce the pain of western sanctions. As of now, it’s unclear how western institutions will acquire the rubles, adding complexity to supply chains.

Lastly, this week Biden announced a plan for helping curb rising prices by initiating another strategic petroleum release from the U.S. stockpile. Biden confirmed a release of 1 million barrels per day in the coming months. Goldman Sachs noted yesterday that the release would be big enough to help move prices a bit, but won’t fix the structural challenges facing oil markets. Put another way, the release is a welcome short-term fix, but it won’t fix the long-term problem of underinvestment in oil exploration. Biden’s new plan, which will last up to six months, could total up to 180 million barrels – the largest strategic reserves release since its creation in the 1970s.

Prices in Review

WTI Crude opened the week at $112.92. Prices were volatile this week, having some spikes but retreating mostly. Crude opened Friday at $101.23, a decrease of $11.69 from Monday.

Diesel opened the week at $4.0710. Diesel was similar to crude, decreasing throughout the week. Today diesel opened at $3.3700, a decrease of $0.701 from Monday due to the expiration of the volatile April futures contract. As of today, prices will begin reflecting futures contracts representing May deliveries, and markets are hoping for calmer waters in the future.

Gasoline opened the week at $3.4740. Prices started the week high before lowering steadily. Gasoline opened today at $3.1595, a decrease of $0.3145 from Monday’s opening price.