Here is Rystad Energy’s oil market note from senior analyst, Louise Dickson: 

Oil prices are rebounding today as the world is in wait-and-see mode over a broad economic downturn and the potential implications of a recession on oil demand.

Extended Covid-19 lockdowns in China, rising cases elsewhere, and fiscal policy decisions to combat soaring inflation are giving the markets reason to be skittish as oil continues its run of over $100/barrel averages.

Oil prices have recently experienced intensified bouts of volatility caused by the supply risk of losing Russian oil barrels from the market and demand downswings from China and the greater Asia continent.

Fear surrounding the tightening of monetary policy and broad financial market sell-offs are contributing to this cluster of concerns.

In terms of global supply, an extensive range of Russian barrels are at risk, with between 1.5 million bpd and 4.5 million bpd at risk of dropping off the market.

Russian exports are holding up, thanks partly to India ramping up purchases of heavily discounted Urals crude grade. 

An EU embargo, if fully enacted, could take about 3 million bpd of Russian oil offline, which will completely disrupt, and ultimately shift global trade flows, triggering market panic and extreme price volatility.

Next week, Europe is set to begin its transition into an oil market with far fewer Russian barrels, which will have broad implications for buyers and consumers alike, and ultimately trigger a pivot in how and where crude flows on a global scale.

As of 15 May 2022, unless “strictly necessary” for EU energy consumption security, traders in the EU are set to cease their purchases of state-owned Russian oil.

As a result of both the sanctions and a drop in domestic demand and refinery activity, we believe Russia will produce 1.5 million bpd less oil and lease condensate in May compared to pre-invasion of Ukraine levels.

The busy travel season of June, July and August will boost demand significantly as the need for road and jet fuel accelerates, as will the demand for oil to power cooling systems in the Middle East during the baking summer months.

Global refinery runs are expected to surge by at least 4 million bpd between now and peak July intake. 

This expected seasonal increase and the strength in momentum for an EU embargo are likely to result in higher gas prices through the summer.

Downside risks continue to materialize out of China due to residual impacts from the Covid-19 shutdowns and depressed oil consumption, and flattish refinery intake. 

GDP weakness out of China would put additional downward pressure on prices, while lockdown-induced supply-chain shortages could provide random bullish momentum down the road. 

The US is also experiencing a bumpy and uneven recovery in oil products demand, especially gasoline. 

Though not directly reflective of slower-moving economic trends, the souring consensus on the financial market remains a risk, as does the timing and execution of a wide range of central bank monetary policies.