Crude futures have been volatile since Russia’s invasion of Ukraine in late February. Last week, Brent was up around 12%, while WTI rose around 9%.
Oil prices fell nearly 7% on Monday after China’s financial hub Shanghai began a lockdown to curb a rise in COVID-19 infections, fueling fears of a demand destruction. Brent crude futures fell $8.17, or 6.8%, to $112.48 a barrel. US West Texas Intermediate (WTI) crude futures fell $7.94, or nearly 7%, to $105.96 a barrel.
Crude futures have been volatile since Russia’s invasion of Ukraine in late February. Last week, Brent was up around 12%, while WTI rose around 9%.
Shanghai on Monday entered a two-stage lockdown of 26 million people in an effort to stem the spread of COVID-19. Authorities closed bridges and tunnels and restricted highway traffic.
“Fears that the lockdown could spread with longer liquidations have further dented the market,” said Andrew Lipo, president of Lipo Oil Associates in Houston.
SEB Bank chief commodities analyst Bjarne Schildrop said oil demand in China, the world’s biggest crude importer, is expected to be 800,000 barrels per day (bpd) softer than normal in April.
Expectations of progress in peace talks between Russia and Ukraine, which could begin in Turkey on Tuesday, also weighed on prices.
However, analysts expect more bullish sentiment when the Organization of the Petroleum Exporting Countries (OPEC) and allies, collectively known as OPEC+, on Thursday discussed plans for a 432,000-bpd increase in production quotas. See you for
OPEC+ will stick to its plans for a modest increase in its oil output in May, several sources close to the group said, despite rising prices due to the Ukraine crisis and calls for more supplies from consumers.
Analysts said the supply deficit is narrowing, meanwhile, as April spot volumes of Russian crude are expected to struggle to find buyers. Russia’s crude oil flows have been slightly affected in March as most of the volume was contracted before the conflict.
Russian state news agency TASS quoted Kremlin spokesman Dmitry Peskov as saying on Monday that dwindling orders for Russian oil would be replaced by contracts from Southeast Asian countries.
Countries such as India and China are still buying Russian crude and Indonesian state energy company PT Pertamina has become the latest to announce that it is considering buying Russian oil.
However, analysts still expect oil markets to feel the effects of Russian oil’s broader avoidance.
“It is expected that 2.5m bl/d of Russian crude oil and products will be lost in April,” SEB’s Schildrop said. Shortage of diesel will increase the demand for Brent crude and light sweet crude.
UAE Energy Minister Suhail Al-Mazrouei said on Monday that oil should not be stopped from any country because “the world is in dire need of supplies”.
OECD reserves are at their lowest level since 2014.
To help ease tight supplies, the United States is considering a further release of oil from the Strategic Petroleum Reserve (SPR), but this may be limited given already low inventories.
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