BofA Global Research with the note:
Demand concerns are filtering into oil markets…
Global crude oil and petroleum product prices have come down sharply in recent weeks (Exhibit 4), with middle distillates pressuring the complex lower. In part, the decline in oil prices follows the sharp deceleration in forward looking indicators such as Asian exports from Korea, Taiwan or China. Put differently, fears of weaker economic growth ahead have taken over commodity markets (Exhibit 5), pushing Brent crude oil below $80/bbl for the first time since the beginning of January 2022. Yet even as oil has come down in line with Asian exports, industrial metals prices have pushed higher.
…just as Russia has kept oil exports at high levels…
Why did oil and metals diverge in recent weeks in the face of an impending recession? Two factors help explain the gap: China reopening is likely to be rather bumpy, curbing any oil demand uplift in 1Q23, and sanctions on Russian oil have not impacted supply so far thanks to a generous price cap. In fact, before the war broke out, Russia was the largest petroleum exporter in the world in 2021 ahead of Saudi Arabia and the United States (Exhibit 6). And despite fears of sanctions impacting output, total Russian oil supply has continued to flow into the market (Exhibit 7).
