We appear to be entering a decisive period for the global oil market.
Crude prices have been ravaged in recent months by fears surrounding global demand. Not only do many countries appear to be heading towards recession, but China, the world’s largest oil importer, have continued to pursue their aggressive “zero-Covid” policy.
This has led to oil prices falling to their lowest levels since January, which has in turn led to speculation that OPEC+ could agree further output cuts at their meeting on 4 December, in an attempt to support oil prices.
Sunday’s OPEC+ meeting arrives the day before Europe begins its ban on Russian seaborne crude. This latest package of sanctions also blocks European companies – which dominate the insurance market for oil tankers – from insuring vessels carrying Russian oil to third countries, unless the crude is being exchanged at a price dictated by the West.
Consequently, the much publicised “cap” on Russian oil will come into effect, a move designed to limit Moscow’s oil revenue whilst maintaining its important flow of crude into the global market to avoid a surge in oil prices.
However, some nations have already indicated they won’t participate, meaning the Kremlin would need to find oil tankers able to carry their crude without Western insurance. If it struggles to do so, global supply will be impacted and prices are likely to rise.
Meanwhile, following widespread unrest across the country, speculation is rife that Beijing may be poised to relax its zero-tolerance approach to Covid-19. This morning’s news that authorities intend to increase vaccination rates amongst the elderly have been interpreted by many as a precursor to a reopening of the Chinese economy.
The rumours saw oil prices rise more than 2% and Hong Kong stocks soar on Tuesday morning, with the Hang Seng index ending the session up 5.24%.
This speculation could help support Apple’s share price, which has fallen 4.5% over the last two sessions following reports that Chinese Covid-19 restrictions could cause a significant shortfall in the production of iPhones.
In October, grievances over strict Covid policy and pay prompted thousands of Foxconn (Apple’s biggest iPhone maker) employees to confront management at the world’s largest iPhone factory, leading to clashes and a mass exodus of workers.
Consequently, earlier this month, Apple released a statement saying that its factory in Zhengzhou was “operating at significantly reduced capacity”.
Unless China announces a departure from its current Covid-19 policies, Apple, and other companies operating in the country, are likely to continue to experience production issues. Therefore, it will be interesting to see how the market reacts to the latest rumours once Wall Street opens.
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This material does not contain and should not be construed as containing investment advice, investment recommendations, an offer of or solicitation for any transactions in financial instruments. Please note that such trading analysis is not a reliable indicator for any current or future performance, as circumstances may change over time. Before making any investment decisions, you should seek advice from independent financial advisors to ensure you understand the risks.