Oil posts weekly gain even as supply chain disruptions threaten prices

Oil prices posted a weekly gain on Friday even as the spectre of a crippling global supply chain disruption loomed large along with oil supply deficits and a potential ban on Russian oil by the European Union.

West Texas Intermediate (WTI) settled near US $107 after a roller-coaster week for the index. It rallied on Thursday afternoon after a report that the European Union is moving toward adopting a phased-in ban on Russian oil, only to lose steam in thin trade ahead of a public holiday weekend, as traders weighed a larger-than-expected build in US oil stocks.

Both WTI and Brent futures on Wednesday had shrugged off the build in US crude inventories to end the trading session over 4 percent higher.

“The outlook for the price of the barrel remains very much tilted to the upside – demand remains amidst tight supply,” Ricardo Evangelista, senior analyst at ActivTrades, told Reuters citing the US stock build.

The International Energy Agency warned that from May onwards roughly 3 million barrels per day of Russian oil could be shut-in due to sanctions or buyers voluntarily shunning Russian cargoes.

That warning coincided with predictions from the logistics industry that China’s lockdowns to battle a resurgence of Covid-19 could trigger a supply chain snarl that could easily dwarf the disruptions of 2020 and 2021.

In the last few weeks, China has been battling its most severe Covid outbreak on the mainland since the initial shock of the pandemic in early 2020. The country’s race to stop the spread of the virus is clogging highways and ports, stranding workers and shutting countless factories in disruptions that are rippling through global supply chains.

Several factory owners quoted by Reuters said it was becoming harder to sustain production given the extent of local COVID-19 curbs aimed at heading off the Omicron variant, complicating efforts to procure materials or ship products.

The disruption could complicate long term trends for oil prices – which remains up due to a number of supply and demand catalysts.