Oil prices fall as lockdowns in China weigh on demand

New Covid-19 restrictions in China pushed oil prices further below recent highs on Monday, with the prospect of lower fuel demand easing some of the pressure on global crude markets.

US oil prices fell 7% to $105.96 a barrel, continuing their decline from a recent closing high of $123.70 set earlier this month. Oil prices have remained sharply higher since Russia invaded Ukraine in February, as Western sanctions and boycotts against Russia have effectively reduced global supply. Brent crude, the global price benchmark, fell about 6.8% to $112.48.

China’s aggressive approach to containing Covid-19 is likely to hurt the country’s oil demand, analysts at Commerzbank wrote in a note to clients on Monday after rising cases pushed half of Shanghai into lockdown. Public transport lines have been suspended and some manufacturers have ceased operations. Tesla Inc.

TSLA 8.03%

said it would shut down production there for four days.

“There was some hope that China wouldn’t go through a lockdown this time, but the message from the country is that that’s out of the question,” said Natasha Kaneva, JP Morgan‘S

Head of Global Commodities Research. “I think the market is definitely scared of what’s next.”

A slowdown in demand from China could ease pressure on global markets after prices rose to multi-year highs following Russia’s invasion of Ukraine. Traders, banks, insurers and shipping companies have shunned Russian oil and shortages have started to hit the market, with many forecasting more. The rise in prices has translated into more expensive gasoline – now averaging over $4.20 a gallon in the US according to AAA – straining consumer wallets and contributing to persistent inflation.

Western drilling companies like BP PLC and Shell PLC have pulled out of Russia, as have companies like Halliburton Co.

and Baker Hughes Co.

who provide technical services in oil fields. Russia’s exporters have chosen to sell crude oil at deep discounts in off-market transactions that allow buyers to protect their identities from the stigma of trading with Russian firms.

Rising cases of Covod-19 have thrown much of Shanghai into lockdown.


Photo:

ALYSONG/REUTERS

Meanwhile, US oil producers are facing bottlenecks that are affecting their ability to respond to higher prices by expanding production. Well ramping up will take time — especially after many domestic drillers have already tapped a large portion of their operational wells as fuel demand has recovered since the pandemic began. Disappointing oil drilling results in the 2010s have also reduced investor appetite for large capital investments to expand production.

Investors will be on the lookout for more clarity on the supply outlook from Thursday’s Organization of Petroleum Exporting Countries meeting. The group of oil-rich countries is most likely to increase supply slightly according to its long-term plan without adjusting to offset the drop in Russian exports, analysts from Ritterbusch & Associates wrote.

Robert Howell, a portfolio manager at Gresham Investment Management, said his fund has maintained a relatively neutral stance on oil lately but is looking for selling opportunities.

“This is a bull market that has come a long way very quickly and may now be on borrowed time,” he said.

The consequences of the tough economic sanctions against Russia are already being felt around the world. WSJ’s Greg Ip joins other experts in explaining the significance of what has happened so far and how the conflict could transform the global economy. Photo illustration: Alexander Hotz

Write to Matt Grossman at matt.grossman@wsj.com

Copyright ©2022 Dow Jones & Company, Inc. All rights reserved. 87990cbe856818d5eddac44c7b1cdeb8

https://www.wsj.com/articles/oil-prices-fall-as-lockdowns-in-china-weigh-on-demand-11648497631?mod=rss_markets_main Oil prices fall as lockdowns in China weigh on demand

Ari Notis

TheHiu.com is an automatic aggregator of the all world’s media. In each content, the hyperlink to the primary source is specified. All trademarks belong to their rightful owners, all materials to their authors. If you are the owner of the content and do not want us to publish your materials, please contact us by email – admin@thehiu.com. The content will be deleted within 24 hours.

Related Articles

Back to top button