Oil drops 6% as shutdown in Shanghai fuels demand fears

Pump lifters work at sunset in Midland, Texas, US, February 11, 2019. Photo taken February 11, 2019. REUTERS / Nick Oxford / File Photo

NEW YORK (Reuters) – Oil fell nearly 6 percent on Monday to its lowest level in two weeks, amid growing concerns about the outlook for global energy demand due to the prolonged COVID-19 lockdown in Shanghai and potential US interest rate increases.

In Shanghai, the authorities erected fences outside apartment buildings. In Beijing, many people have started stockpiling food, fearing a similar lockdown after a few cases of COVID-19 emerged. Read more

“China appears to be the elephant in the room,” said Jeffrey Haley, an analyst at brokerage OANDA. “The tightening of COVID-Zero restrictions in Shanghai, and concerns over the spread of Omicron in Beijing, torpedoed sentiment today.”

Brent crude futures fell $6.17, or 5.8 percent, to $100.48 a barrel by 11:12 a.m. EDT (1512 GMT). US West Texas Intermediate crude fell $5.91, or 5.8 percent, to $96.16.

“Shanghai is showing no signs of abandoning its strict no-coronavirus policy, pledging instead to step up enforcement of COVID restrictions, which could hurt oil demand even more,” said City Index analyst Fiona Cincotta.

Both benchmarks were on track for their lowest close since April 11. Both lost nearly 5% last week, and Brent crude has fallen sharply after hitting $139 a barrel last month, its highest since 2008.

Oil also put pressure on the dollar

The Chinese yuan is set for its biggest losing streak in three days in nearly four years due to fears of an economic slowdown in the world’s largest oil importer. Read more

Oil gained a boost earlier in the year from tight supplies after Russia’s invasion of Ukraine on February 24, which prompted customers to avoid buying Russian oil due to Western sanctions. But the market could tighten further with the European Union imposing a ban on Russian crude.

The European Union is preparing “smart sanctions” against Russian oil imports, according to a report in The Times of London citing the European Commission’s Executive Vice President, Valdis Dombrovskis. Read more

NK Rosneft PAO Russian (ROSN.MM) Five traders said they failed to sell oil in a massive tender after demanding an advance payment in rubles, meaning the country’s largest oil company must find ways to funnel more crude to Asian buyers via special deals. Read more

Shipping unit of France’s TotalEnergies SE (TTEF.PA) A tanker was temporarily chartered to load Abu Dhabi crude in early May for Europe, the first such cargo in two years, according to dealers and a shipping report. Read more

Additional reporting by Yuka Obayashi in Tokyo and Alex Lawler in London. Editing by David Goodman, Susan Fenton, and David Gregorio

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