Demand and supply pull prices in opposing directions

Energy prices continue to be pummelled by upward pressure related to fears of supply shortages and downward pressure from signs of slower economic growth, tighter monetary policy and a stronger US dollar. This week was no exception, although supply fears dominated, and prices rose as the EU proposed a ban on Russian oil imports by end-year. Admittedly, unanimous approval by member states is proving difficult but, even without a co-ordinated response, we expect Europe’s oil imports from Russia to plunge. This will involve a scramble to find alternative suppliers, which is a key reason why we expect prices to remain high this year. What’s more, if the EU bans any EU involvement in the transportation of Russian oil, as was proposed, then this could potentially send prices even higher than we expect. Turning to next week, progress on the EU’s oil embargo plans will remain a key driver of prices, but there may be some scope for demand-related news to take the upper hand. China’s April trade data on Monday are likely to show a further fall in commodity imports given the virus-related downturn in economic activity, which could weigh on prices. By contrast, new infections are falling at the national level which, if it continues, may spark optimism about a recovery in China’s commodities demand and give a lift to prices, particularly industrial metals, later in the week.