Oil prices tumble as Shanghai shuts down amid surging Covid-19 cases
Oil prices dipped four per cent on both major benchmarks this morning following Shanghai’s launch of a two-stage lockdown to contain a surge in Covid-19 infections, escalating fears of weaker fuel demand in China.
Brent Crude has plummeted 3.53 per cent to $116.40 per barrel while WTI Crude has slipped 3.91 per cent to $109.50 per barrel.
Over recent weeks, the market had been increasingly influenced by volatile geopolitical factors.
Russia’s invasion of Ukraine has seen oil prices spike this month – peaking at 14-year highs of $139 per barrel on March 7, with the West ramping up sanctions on the world’s second largest crude exporter.
However, the recent expansion of lockdowns from China, the world’s largest crude importer, has weighed down recent rallies and reignited concerns over the influence of the pandemic on global markets.
Peel Hunt analyst Ian Williams said: “Potentially it could be a rare quiet start to the new week, with further peace talks between Russia and Ukraine due this week. The oil price is retreating from last week’s strong gains as the focus swings to the demand outlook; China confirmed a two-stage lockdown in Shanghai in response to surging Covid-19 infections.”
Markets remains elevated with tight supplies
Despite the drop, prices remain well above $100 per barrel, after seven years of sitting below the milestone with global supplies remaining tight.
There is also the possibility markets could rally with the Organization of the Petroleum Exporting Countries and its allies (OPEC+) set to meet this Thursday.
It is widely expected the extended group will not raise oil output at a faster pace, despite calls from the West for OPEC+ to boost supplies.
The organisation has suffered from persistent underperformance, failing to reach modest increases of 400,000 barrels per day – with multiple members not hitting raised production quotas.
This is a consequence of both capacity issues and multiple members being wary of antagonising OPEC+ member, Russia, with most countries in the group taking a neutral stance on the conflict.
UAE energy minister Suhail al-Mazrouei argued unfair expectations were being placed on oil producers.
He suggested it was not possible for Western countries underinvest and push for renewables, and then ask for output boosts during a crunch.
The minister said: “I think in COP 26 all the producers felt they were uninvited and unwanted but now we are again superheroes, it’s not going to work like that.”
Outlining the UAE’s position, he said: “We as a country are trying to do our best. We are investing and raising our capacity to 5m barrels. But that does not mean that we will leave OPEC+ or do something unilateral. We will work with this group to ensure that the market is stable.”
Earlier this month, the International Energy Agency warning that 3m barrels per day of Russian oil could fail to make it to market due to Western sanctions.
Russia, which calls its invasion of Ukraine a “special operation”, exported 4.7 million barrels per day of crude in 2021, making it the world’s second-largest exporter behind Saudi Arabia.
Elsewhere, Organisation for Economic Co-operation and Development (OECD) stockpiles are at their lowest levels since 2014.
To help ease tight supply, the United States is reportedly considering another release of oil from the Strategic Petroleum Reserve (SPR) that could be bigger than the sale of 30m barrels earlier this month.