Note from MKM Partners - Dec 15

[dan_s]

The December 5 deadline for Europe to dramatically slow purchases of Russian oil has come
and gone and the near-term impact on oil prices was much more muted than most industry
observers expected. Despite this initial response, we think that Russian oil supply available to
the market is poised to drop by late 1Q23 by 400,000-700,000 Bopd. Covid is starting to run
wild across China, and data around Covid deaths has started to show the impact of the spread
of the virus. In terms of the numbers, China was averaging less than 10 deaths per day from
Covid over the summer and fall when Covid zero was in place. Those numbers have started to
climb over the past week to a daily average of 25 and a high of 37 on Tuesday. We think this
is just the tip of the iceberg as we expect exponential growth in daily fatalities over the next
few months with daily deaths numbering in the thousands. As long as China stays away from
its draconian Covid-zero policies, we think China has a good chance of a full reopening by the
early spring of 2023 which can be a major boon for oil demand.
Leo Mariani, CFA, Managing Director

I feel sorry for the people of China.