(Bloomberg) – Oil fell as China imposed new virus lockdowns, raising concerns over demand at the world’s largest crude oil importer.
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New York futures fell more than $9 to trade near $105 on Monday. Markets were sold out after authorities in Shanghai announced they would take turns locking down half the city for mass testing for Covid-19. Traders fear the lockdowns could affect the outlook for global crude oil demand. Global growth risks from inflation and monetary tightening also hit market sentiment, earlier dragging government bonds lower.
“China’s oil demand is about 15 million barrels per day,” said Andy Lipow, president of Houston-based Lipow Oil Associates LLC. “The magnitude of the sell-off reflects fears that the Covid lockdowns could spread in China and significantly affect demand as the oil market tries to find alternatives to Russian oil supplies.”
Russia’s invasion of Ukraine continues to disrupt supplies of key commodities and add inflationary pressures on the global economy. Oil heads for a fourth month of gains as a tight market is exacerbated by buyers shunning Russian oil supply. According to industry data, the country’s exports fell by more than a quarter in March 17-23 from the previous week.
Some Russian crude finds its way to Asia. According to data from Vortexa Ltd. In the first 23 days of March, eastbound exports of some grades from Baltic Sea and Black Sea ports rose to their highest levels in almost two years. Moscow is still able to sell its crude oil due to price cuts and is aiming to keep production stable even amid unprecedented sanctions, Deputy Prime Minister Alexander Novak said last week.
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Demand concerns are beginning to surface as the virus spreads in China. Shanghai — a city of 25 million people — will initially lockdown areas east of the Huangpu River, including the financial district and industrial parks, for four days starting Monday. According to a statement from the local government, the restrictions will then move to the west of the city for another four days.
A temporary pause in Yemen’s Houthi hostilities against Saudi Arabia also contributed to lower oil prices on Monday, Staunovo said. According to a television report, the group’s rebel leader announced a three-day ceasefire on Saturday after attacks on the Saudis escalated last week.
The US, meanwhile, said the relaunch of a nuclear deal with Iran was not imminent after recent requests from Tehran, which have included Washington removing the Islamic Revolutionary Guard Corps from its list of terrorist organizations, are not imminent. Iran is an ally of Russia, and its war in Ukraine also complicates negotiations.
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