Oil benchmarks are dipping slightly ahead of the weekend on reports that Shanghai is set to return to lockdowns this weekend.
Still, oil remains firmly on an upward trajectory as persistent supply constraints coupled with the global demand recovery continue to lend themselves to tightening market structures. Such supply-demand dynamics have contributed towards oil’s year-to-date gains that currently exceed 60%.
Should China be able to reduce the number of virus-curbing disruptions while the US summer driving season remains ongoing, that may well offer another demand-side tailwind for oil prices.
A rapid recovery in China’s demand amid prolonged struggles for suppliers in ramping up output could see oil benchmarks revisiting their respective March peaks, until markets are given more concrete signs that demand destruction is taking hold due to already elevated prices.
From a technical perspective, Brent prices are using this opportunity to pull away from overbought territory. Once the froth has been cleared, oil prices should boast of a stronger support line from which to launch even higher.