Prices to remain buffeted by headwinds and tailwinds

Last week, we suggested that the downside risks to prices were building, and these came to the fore in the past week with particularly hawkish US Fed minutes published on Wednesday and ongoing COVID-19 related lockdowns in China. The announcement of a chunky release from the OECD’s strategic oil reserves put additional downward pressure on oil prices. However, reserve releases are more of a sticking plaster than a solution. While the additional supply will help to offset lower oil exports from Russia and put downward pressure on prices, it is also a measure of last resort and points to widespread concern about a shortfall of supply. What’s more, while OECD stocks are high, they are also finite. At some point, global oil production will have to rise if Russia’s oil is going to be permanently off limits to Western buyers. Turning to next week, the war in Ukraine and its implications for commodity supply will remain the key driver of prices. On the data front, China will publish its March credit data on Monday, which will probably show that a lockdown-related slump in home sales weighed on overall credit growth. Similarly, China’s March trade data, due on Wednesday, are likely to be softer, reflecting congestion at ports. Prices, particularly of industrial metals, could fall in the wake of the data.