It’s been a mixed week for oil prices as the worsening COVID situation in China is offset by the impending embargo on Russian oil and speculation regarding OPEC’s December 4th meeting.

Over the weekend, China saw a wave of demonstrations as tens of thousands took to the streets in a number of cities including Shanghai, Beijing, and Wuhan. These demonstrations were a reaction to the strict COVID-19 restrictions which have been ongoing for some time, even at a point where the rest of the world appears to have moved forward. The Chinese authorities continue to enforce a zero-COVID policy, which has seen months of stringent lockdowns, electronic surveillance, and mass testing. In contrast, most other countries have dropped the bulk, if not all, of their COVID-19 restrictions.

The surprise outbreak of civil disobedience, which is rare in China, saw the Hang Seng Index fall sharply on Monday, the renminbi losing ground against the dollar, as well as curbing oil prices. Victoria Scholar, Head of Investment at Interactive Investor, said: "Oil prices are trading sharply lower after protests sparked concerns about weakening demand from the world’s largest economy."

Meanwhile in Europe, European Union countries are holding last-ditch talks over what level the price cap for Russian oil should be set at. The measure is due to come into force next week to coincide with the introduction of a previously agreed EU embargo on seaborne Russian oil, alongside a similar ban in the UK.

The unrest comes at a pivotal time for world oil prices. OPEC and its allies, known as OPEC+, are due to meet this weekend with the pending outcomes of this meeting leaving the market in a volatile state. As OPEC agreed to cut output at its last meeting in October despite international opposition, opinions on the outcome of the upcoming meeting vary. Last week, the de facto leader, Saudi Arabia denied reports that the cartel was mulling a potential increase in output.

Naeem Aslam, a Chief Market Analyst at AvaTrade, said: "It is demand that is creating the main issue for the price, and the fact that we have a potential recession threat is helping to subdue oil prices. Nonetheless, OPEC’s meeting on 4th December remains the main anchor for oil prices this week. There is no doubt that prices are likely to remain highly volatile as [they] are likely to react to all kinds of rumours. So far, what is priced in is that OPEC+ isn’t going to increase production. Anything that deviates from this could make the price swing by a significant margin."

Quite simply, an increase in production from current levels will drive prices lower while a further cut in production will push prices higher.

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