“China is the big fear factor right now,” said Michael Tran, managing director of global energy strategy at RBC Capital Markets.
However, Monday’s sell-off shows that markets remain sensitive to changes in energy demand, particularly in China, the world’s largest oil importer. Not only does China consume vast amounts of gasoline, jet fuel and diesel, it is also the largest source of energy demand growth in the world.
“You need China for this market to run on all cylinders. China is the biggest cylinder,” Tran said.
Shanghai, a city of about 25 million people and a major center of China’s economy, is expected to impose a four-day curfew on about half the population starting Monday. The lockdown then shifts to the other half of Shanghai.
“The magnitude of the selloff reflects fears that the Covid lockdowns could spread in China,” Andy Lipow, president of Lipow Oil Associates, wrote in a report Monday.
Despite the losses, oil prices remain elevated as the war in Ukraine rages on and the West imposes tough sanctions on Russia.
US crude was at $105.96 a barrel. It’s up about 40% so far this year, including a nearly 9% gain in the last week alone. Meanwhile, Brent crude, the global benchmark, traded at $112.48 a barrel on Monday.
Prices at the pump remain near record highs. The national average for regular gasoline rose to $4.25 a gallon Monday, according to AAA. That’s just 8 cents off the record $4.33 a gallon set in early March.