Oil plunges 6% as China lockdowns continue to fuel demand worries

NEW YORK: Oil prices fell around 6% yesterday alongside equities, as continued coronavirus lockdowns in China, the main oil importer, stoked concerns over the outlook for demand.

Brent crude fell US$6.45, or 5.7%, to settle at US$105.94 (RM464.49) a barrel. US West Texas Intermediate crude fell US$6.68, or 6.1%, to settle at US$103.09 (RM451.99) a barrel. Both contracts have gained around 35% so far this year.

Global financial markets were spooked by concerns over interest rate hikes and fears of recession as China’s tighter and wider Covid-19 shutdowns led to slower export growth in the second world economy in April.

“Covid lockdowns in China are having a negative impact on the oil market, which is selling along with stocks,” said Andrew Lipow, president of Lipow Oil Associated in Houston.

China’s crude imports in the first four months of 2022 fell 4.8% from a year ago, but April imports rose nearly 7%.

Chinese imports of Iranian oil in April exceeded peak volumes seen in late 2021 and early 2022 as demand from independent refiners weakened after Covid lockdowns weighed on fuel margins and on growing imports of cheap Russian oil.

Wall Street stock indices fell and the dollar hit a two-decade high, making oil more expensive for holders of other currencies.

Saudi Arabia, the world’s largest oil exporter, lowered crude prices for Asia and Europe in June.

In Russia, oil production increased in early May from April and production stabilized, Deputy Prime Minister Alexander Novak said, after production fell in April as Western countries imposed sanctions following the Ukrainian crisis.

Last week, the European Commission proposed a phased embargo on Russian oil, pushing Brent and WTI prices higher for the second week in a row. The proposal needs a unanimous vote from EU members this week to pass.

The European Commission is considering offering landlocked states in the east of the European Union more money to upgrade oil infrastructure in order to convince them to accept, an EU source told Reuters.

“The EU oil embargo will trigger a seismic shift in European and global crude markets, which Rystad Energy says could see up to 3 million barrels per day of EU crude imports from reduced by December 2022 as part of a full implementation of the policy,” said Bjørnar Tonhaugen, head of oil market research at Rystad Energy.

German officials are quietly preparing for any sudden stoppage of Russian gas supplies with a contingency plan that could include taking over critical companies, three people familiar with the matter told Reuters.

Japan, the top five crude importers, will “in principle” ban imports of Russian crude, Prime Minister Fumio Kishida said, adding that it would take time. – Reuters

Comments are closed.