The oil market has shown a relatively stable price trend over the past week. The expected growth in oil demand from China and the impact of the price cap on Russian oil balanced each other out.
The oil price is stabilizing. Early this month, Brent crude oil prices fell to a year's low at $76,59 per barrel. This relatively quiet trading week between Christmas and New Year's Eve, Brent is fluctuating around $84 per barrel.
The development of demand for oil in China is leaving a strong mark on the oil market. The country has adhered to a very strict anti-corona policy for a long time. Under pressure from protests, China abandoned this policy and the virus is now spreading. The vast majority of other countries have already taken this step. With the relaxation, demand for oil increased rapidly again, especially in 2022, often at a higher level than before the corona crisis. Whether the demand for oil in China shows the same pattern is subject to discussion. One group of analysts expects so. If the Chinese economy starts growing again, the demand for oil will naturally follow, they say. Other analysts are less certain. The Chinese economy is ultimately a centrally planned economy. The Chinese economy therefore sometimes chooses a different route than the market economies. If the oil price is too high in the eyes of the government, the Chinese government could pull a rabbit out of a hat to put a brake on oil demand.
Ill-considered price ceiling
Another factor causing a lot of uncertainty in the oil market is the price ceiling for Russian oil set by the G7 and Australia. This measure was introduced, to put it bluntly, to prevent Russia from raising too much oil money to finance the war in Ukraine. According to some analysts, the price ceiling plan mainly has a market-disrupting effect and has not been sufficiently thought through. Unlike, for example, the ban on oil from Iran, Russia can still sell the oil fairly easily on the world market. The Ural oil price has been fluctuating around $55 per barrel for about three weeks now. That is below the ceiling set at $60 per barrel. The ban has shifted the destinations for Russian oil. The US and EU have banned Russian oil and China, India and Turkey are now the main buyers, but at a steep discount to the international benchmark Brent. However, little is regulated about re-exportation as crude oil or distillate, some analysts say.
The diesel price has also taken a step up, following the crude oil price. On Wednesday, December 28, the price rose to €136,34 per 100 liters. That is more than €6 higher than three weeks ago. Crude oil has risen by approximately 10% in that period, while diesel has become 'only' 7% more expensive. That is quite remarkable because the diesel price often closely follows the oil price.