Dips On Demand Concerns

Brent crude has started the week modestly lower, back to the low $106/bbl region (-0.5% on the day), after ending last week at $107/bbl. WTI is also weaker, now back to $104/bbl. The tug of war between supply and demand factors driving sentiment continues. Weekend Covid developments in China add downside risks to the demand outlook, which explains most of today's move.

• Rising covid cases in Shanghai, including the discovery of the BA.5 variant and mass testing this week is raising concerns around the demand outlook for broader commodities. Fresh lockdowns are also taking place in Haikou, the capital of Hainan and Macau.
• Elsewhere the focus will be on US President Biden's visit to Saudi Arabia this week. However, there is little optimism that much supply relief will be forth coming as spare capacity in the country and OPEC+ more broadly is reportedly fairly limited.
• Domestic gas prices in the US have been trending the right way for the administration, although it remains to be seen how much further downside materialises. Domestic supply remains tight in the US.
• Last week spec positions in both the gasoline and crude oil market were cut. For ICE Brent we are now back to a 20 month low at +143k. The US rig count also edged up by 2 last week.
• In the EU, Canada will return a repaired Russian turbine to Germany needed for the Nord Stream 1 gas pipeline according to a Reuters report.