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Oil fell more than 7% during Monday morning trading on Wall Street as concerns over new lockdowns in China and the potential impact on demand caused prices to fall.
West Texas Intermediate crude futures, the US oil benchmark, were down $8.89, or 7.8%, to trade at $105.01 a barrel as of 10:00 am on Wall Street. International benchmark Brent traded 7.4% lower at $111.61 a barrel.
“Today’s price drop is primarily due to concerns about demand after the Chinese metropolis of Shanghai entered a partial lockdown,” Commerzbank said in a note to customers on Monday.
China is the world’s largest oil importer, so any slowdown in demand will weigh on prices. The nation consumes around 15 million barrels per day and imported 10.3 million barrels per day in 2021, according to Andy Lipow, president of Lipow Oil Associates.
“The magnitude of [the] The sell-off reflects fears that the Covid lockdowns could spread in China, which could significantly affect demand at a time when the oil market is trying to find alternatives to Russian oil supplies,” Lipov said on Monday.
Another round of peace talks between Ukraine and Russia is slated for this week, which Commerzbank said also contributed to the slide in oil prices.
Crude Oil had its first positive week in the last three weeks, with WTI and Brent ending the week up 8.79% and 10.28%, respectively.
The oil market has been characterized by increased volatility since Russia invaded Ukraine at the end of February. Prices shot up to over $100 a barrel on the day of the invasion and continued to climb. WTI surpassed $130, hitting its highest level since 2008, while Brent hit nearly $140.
But prices didn’t stay there for long and on March 14, WTI was trading below $100. The choppy action reflects in part the many unknowns surrounding the future of Russian oil.
The International Energy Agency warned that three million barrels a day of Russian oil production are at risk in April as Western sanctions prompt buyers to avoid the country’s oil. However, analysts have noted that Russian oil is still finding buyers, particularly from India.
Traders say the recent volatility is also coming from non-energy market participants using crude oil as an inflation hedge. Over the past few weeks, open interest has declined, leaving the market vulnerable to even larger intraday swings.
Oil held above $100 despite Monday’s slide.
“We still expect Brent crude to continue to rally as the market continues to price in an increase in energy supply risk amid immense supply disruptions,” TD Securities said Monday.
“The right tail in energy markets is still fat… The facility is still ripe for higher energy prices,” the company added.