COVID out break in China sends the oil price down, closing in on the Putin 'put' at $100 a barrel. Russian default looming, won't be able to pay in U.S. Dollars only Ruble, which is almost worthless as a currency.
My oil prediction may not materialize within its time frame of, sans a hedged loss (refer to Chart 1), with oil sliding towards $100 a barrel, the reasons for this collapse on the oil price is China, which has just locked down 24 million of its citizens in containing the worst outbreak of the new Covid-19 variant Deltacon. Didn't see this coming. Alas, pandemic has not abated, which, as the Pfizer chief has recommended that we all get a 4th booster shot going into 2022. Which restrictions going out the window across Europe in lieu of Easter and of course Spring/Summer; one could ask if we may indeed have restrictions returning at some point in 2022?
But, it the war in Ukraine that continues to affect not just commodity prices in general, but of course the oil price, To which Putin may have placed a, metaphorically, 'put' on the oil price not to go beneath $100 a barrel to ensure Russia's refineries are still getting a top price and remove U.S. denominated dollars ($ will sell), as Europe didn't go all in on Russian oil bans. Thus, making sure that Western Europe and America feel the inflation bite at the gas station.
The other issue, which was discussed here, is the Central Banks reluctance to increases rates amidst the worst global inflation in over 40 years, which will keep the U.S. Dollar not as sought after as it could be, with inflation hedges such as gold and silver, oil will return to its bids once again.
13th March 2022, China begins to lock down millions of people, the oil price fell from $108 to $104/$101 (14th). All eyes on the $100 support, which could be breached if China locks down Beijing.
The other issue, Chart 2, is the looming Bond default by Russia as noted with the Russian Ruble, which, if occurs, may send oil down further or depending on the contagion, Putin may start to cut off the oil supply to certain European countries as a payback.
If Russia does default on its bond payment, this most definitely could ricochet throughout the banking system, more so investment banks that hold Russian bonds, assets or anything that is connected to Russian export markets. Which have already taken a hit on sanctions. The key measure would be the amount of money Russia has invested in Western property as a prelude to a financial meltdown.
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