Oil plummets as Shanghai lockdown heightens fears of weaker demand

FILE PHOTO: A worker holds a nozzle to pump gasoline into a vehicle at a gas station in Mumbai, India, May 21, 2018. REUTERS / Francis Mascarenhas

March 28, 2022

By Yuka Obayashi

TOKYO (Reuters) – Oil prices fell more than $ 5 a barrel on Monday as fears of weaker fuel demand in China rose as the Shanghai Node launched a two-stage lockdown to curb rising COVID-19 emissions.

The market has begun another week of uncertainty, hit on the one hand by the war between Ukraine and Russia, the world’s second-largest exporter of argon, and the expansion of restrictions related to COVID in China, the world’s largest importer of argon. .

Brent crude futures fell to $ 115.32 a barrel and traded down $ 5.15, or 4.3%, to $ 115.50 at 07:31 GMT.

West Texas Intermediate (WTI) futures fell as low as $ 108.28 a barrel and fell $ 5.30 or 4.7% to $ 108.60.

Both benchmarks rose 1.4% on Friday, recording their first weekly gains in three weeks, with Brent up 11.8% and WTI climbing 8.8%.

“The Shanghai lockdown caused a new sell-off from frustrated investors as they expected such a lockdown to be avoided,” said Kazuhiko Saito, chief analyst at Fujitomi Securities.

Shanghai kicked off a two-stage lockdown in the city of 26 million people on Monday, closing bridges and tunnels and restricting motorway traffic to curb rising local COVID-19 cases.

Saito also said that the upward reaction to a rocket attack by the Yemeni Houthis on an oil distribution facility in Saudi Arabia had ended on Friday.

However, he expected the oil market to rise when the Organization of the Petroleum Exporting Countries (OPEC) and its allies, known as OPEC +, met on Thursday, as the group was “less likely to increase oil production faster than their own.” in recent months “.

Analysts have differing views on how hard Russian oil exports could be hit by economic sanctions imposed on Moscow by the United States and its allies following the Russian invasion of Ukraine. Some estimate that 1 to 3 million barrels per day (bpd) of Russian oil may not be on the market.

Russia, which calls its actions in Ukraine a “special operation”, exported 4.7 million bpd of crude oil in 2021, making it the second largest exporter in the world after Saudi Arabia.

OPEC + has so far resisted calls from major consumer countries to speed up production. The group is increasing production by 400,000 bpd each month since August to ease cuts made when the COVID-19 pandemic hit demand.

“Oil prices are likely to stay above $ 100 a barrel for a while as global supply becomes more limited as supply from Russia declines as the United States moves into the driving season,” said Tetsu Emori, chief executive. Advisor to Emori Fund Management.

OECD stocks are at their lowest level since 2014.

To facilitate limited supplies, the United States is considering another release of oil from the Strategic Petroleum Reserve (SPR) that could be greater than the sale of 30 million barrels earlier this month, a source said.

“But given the already low inventories, there will be limited circulation of the SPR, which is seen as another support factor in the market,” Emori said.

US drills added oil rigs for the 19th consecutive month, but at a slower pace since 2020, although the government urged producers to boost production.

(Report by Yuka Obayashi · Additional reports by Sonali Paul in Melbourne and Florence Tan in Singapore; Edited by Simon Cameron-Moore and Christopher Cushing)

Oil plummets as Shanghai lockdown heightens fears of weaker demand

Source link Oil plummets as Shanghai lockdown heightens fears of weaker demand

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