Oil futures fell sharply on Monday, with the US benchmark ending below $100 a barrel, its lowest level in two weeks, as worries about the spread of COVID cases in China weigh on the energy demand outlook.
This has added to concerns that Fed tightening could also weaken the outlook for the commodity.
price action
West Texas Intermediate Crude Oil for June Delivery CL.1, +1.01% CL00, +1.01% CLM22, +1.01% fell 3.5% or $3.53 to trade on the New York Mercantile Exchange at $98.54 a barrel – lowest since April 11, FactSet data shows. Prices fell about 4.1% last week.
June Brent crude BRN00, +1.20% BRNM22, +1.31% fell 4.1% or $4.33 to $102.32 a barrel on ICE Futures Europe, also its lowest end in two weeks after it was down 4.5% last week.
May gasoline RBK22, +1.07% slipped 2% to $3.24 a gallon, while May heating oil HOK22, +2.16% gained 3.9% to end at $4.091 a gallon, the highest for about a month.
May NGK22 natural gas, +2.86%, rose 2.1% to $6.669 per million British thermal units, after a 10.5% plunge last week.
market leader
Oil sold off amid ongoing lockdowns in Shanghai and other parts of China, which “seriously impacted oil demand there,” said Marshall Steeves, an energy markets analyst at S&P Global Commodity Insights. “This really highlights the superiority of Chinese demand fears over concerns about Russian oil exports.”
“This really illustrates the superiority of Chinese demand fears over concerns about Russian oil exports.”
— Marshall Steeves, S&P Global Commodity Insights
Oil demand growth around the world could also be hurt by slowing economic growth as the Fed and other central banks tighten monetary policy to curb inflation, Steeves told MarketWatch.
Concerns about growth in China contributed to an overall risk-off sentiment in global markets on Monday, which swept commodity prices. Iron ore and steel futures slumped in Asia amid fears Beijing could face COVID restrictions on hash, reflected in Shanghai, where weeks of lockdowns have impacted millions.
Beijing began testing millions of residents and shutting down business districts and some residential areas amid a surge in COVID cases. This led to long queues at supermarkets amid fears the restrictions could be repeated in Shanghai as millions are now locked down for weeks.
Oil prices were also pressured by the strong US dollar on Monday, as were many commodities such as gold.
Meanwhile, Jeffrey Halley, senior market analyst at OANDA, said in a note to clients that he sensed a shift in sentiment for oil, even on tight supply, as Asian markets ignored some key headlines on Monday.
First, European Commission executive vice president Valdis Dombrovskis told the London Times that the EU was preparing “smart sanctions” against Russian energy imports that would include “some form” of an oil embargo.
With many European countries dependent on Russian oil and gas, not everyone supports a ban on these commodities, with Germany and Hungary among opponents. But Halley said he has “concerns that all European energy sanctions against Russian oil and gas can long be ignored”.
Analyst: Libya oil production disruption a ‘convenient coincidence’ helping Russia: analyst
Also, the market dismissed severe damage at a major Libyan oil terminal during the recent clashes, Halley said.
“Preliminary assessments indicate that 29 sites, including oil derivatives tanks and several other tanks, were damaged,” Libya’s state-owned National Oil Corp said. in a statement late Saturday.
Elsewhere on the Nymex, natural gas prices have rallied amid growing exports to Europe and a cold spell forecast for much of the US, particularly in the Northeast, Nikoline Bromander, a senior analyst at Rystad Energy, said in a note.