Although crude oil prices retreated somewhat on Friday, it doesn't change the fact that this week broke a seven-year high.
Brent crude hit a high of $87.73 per barrel on Friday, surpassing the previous peak from October last year and reaching its highest level since 2014 when prices were around $115.
WTI crude followed closely behind, though still slightly below last year’s peak, standing at a high of $84.8 per barrel and marking its fifth consecutive weekly rise. Despite the ongoing Omicron wave, escalating geopolitical tensions are threatening supply, while strong end-user demand continues to support oil prices.
The surge in international oil prices towards a seven-year high has put enormous pressure on China. The U.S., now a net oil exporter, shares a common interest with Russia in driving oil prices higher, as Russia is more dependent on oil revenues. Meanwhile, China, as the largest oil consumer, is significantly affected by high oil prices.
China’s trade surplus emerged after oil prices fell from over $100, but with rising oil prices and soaring semiconductor costs, China’s essential imports have become more expensive, eroding its trade surplus. Notably, despite several years of massive trade surpluses, China’s foreign exchange reserves haven’t grown due to deficits in areas like financial investments, overseas education, and emigration. Losing the trade surplus would place immense pressure on the exchange rate.
I’ve always said that $65 per barrel is an important turning point for global oil prices; the difference between above and below $65 is significant because of the backward-bending nature of the oil supply-demand curve. Based on such economic models, oil should remain at elevated levels...