WTI recovers for the third day at $109.50 amid risk flows, though still lower for the week

• WTI has risen for the third day in a row at $109.50 and is targeting recent highs at $111.50.
• Risk appetite flows and EU/Russia gas trade concerns are supporting WTI for now, though it remains lower on the week.
• But global growth concerns and the ongoing China lockdown remain a drag, making a break above $110.

Oil prices rose for the third consecutive session on Friday, with the previous month’s WTI future rising nearly $3.00 at $109.55 a barrel, up more than $11 a barrel, more than $11 higher than mid-week lows. at $98.55. Friday’s rally was partially fueled by a rebound in global stock markets at the end of what has been, by them, a difficult week marked by concerns about central bank tightening and weakening global growth.

However, the rally in WTI still leaves it down around $1.0 for the week, although the bullish momentum of the past few days suggests a test of the recent highs at $111.55 is certainly a possibility late this week/early next day. The recent bullish momentum in crude oil markets comes despite some potentially bearish fundamental developments in recent days.

Firstly, Chinese lockdowns show no sign of widespread easing yet with cases in some key cities such as Shanghai, with authorities in Beijing on Friday forced to deny rumors that the capital is headed for full lockdown. Separately, reports suggest the EU may drop its plans for a Russian oil import embargo amid continued resistance from Hungary.

However, concerns over a Russian gas export block as Russian gas exports halted flows to a number of sub-European units after Russia imposed sanctions on them, and as flows into Ukraine face a Breakout likely to negate previous bearish developments for now. Analysts on Friday have been concerned about the cautious rally in global risk assets and if sentiment takes a turn for next week, it may be difficult for WTI to hold onto $110, especially if the US embargo plan Russian EU oil plummets.

And oil traders shouldn’t be reminded that oil markets are also plagued by the same global growth fears that currently weigh on other asset classes. The International Energy Agency (EIA) and OPEC lowered their 2022 oil demand growth forecasts in their latest monthly reports released on Thursday citing the impact of falling demand in China and slowing growth elsewhere. It is another reason why, in the absence of more constructed geopolitical risk (EU Embargo on Russian Oil)/an improvement in the lockdown situation in China, it may be difficult for WTI to rise above $110 again.