Crude oil prices have dipped after the International Monetary Fund trimmed off 0.8% from its global economic growth forecast to 3.6% in 2022 than it had originally projected at the beginning of this year due to the ongoing Russian invasion of Ukraine.

It also reduced China’s GDP growth estimate for 2022 down from 4.8% to 4.4% thanks to a longer than expected downturn despite plans to reopen factories in Shanghai that have shut down or restricted production for three weeks.

In its latest World Economic Outlook, the IMF said the combination of more transmissible variants and China’s strict zero-Covid policy could continue to hamper the country’s economic activity and increase uncertainty.

This comes after the International Energy Agency reduced China’s oil consumption by 925,000 barrels per day in April.

The benchmark Brent crude is currently trading about US$108.4 per barrel, down from US$111.94/bbl at the beginning of this week.

While the situation is unlikely to last, it has served to at least balance the gap between the target levels set by OPEC+ and actual production from the oil cartel, which Reuters reported had widened in March to over 1.4MMbbl/d due to sanctions on Russian crude oil.

Oil prices poised to rocket

However, the current oil price may be a brief respite from the further gains with JPMorgan flagging the potential for the Brent crude benchmark to jump up to US$185 per barrel if the European Union agrees to impose a full and immediate ban on Russian oil imports.

Tentative discussions are already underway though Germany, Hungary and Austria are reportedly resisting an immediate embargo due to concerns that it will result in a deep recession.

However, the investment bank believes a more likely scenario is a gradual phase-out of Russian imports with about 2.1 million barrels per day (MMbpd) of supply cut from the current 4MMbpd of supply.

This will result in a more moderate impact on oil prices.

Coal questioned

Coal-powered generation in Australia may well have a nail driven into its coffin somewhat earlier than expected after the Unit 2 generator at AGL’s (ASX:AGL) Loy Yang A power station was shut down for the second time in three years due to an electrical fault.

An investigation is currently underway though AGL has advised the Australian Energy Market Operator that the outage may last until 1 August 2022, meaning that the plant that supplies 30% of Victoria’s power is going to be out of operation through a large part of winter.

The plant – one of the last remaining brown coal-fired stations in Australia – is currently expected to close progressively between 2040 and 2045.

While there is no word yet if this outage would impact on the eventual closure of Loy Yang, it does raise further questions about Australia’s ageing coal-fired power infrastructure especially when taking Origin Energy’s decision to close the Eraring station in New South Wales in 2025 – seven years earlier than previously planned – into account.