Oil prices plunged around 4 dollars on Monday as worries over lower fuel demands in China grew. The dip came in after the Shanghai authorities said that they would shut Shanghai, the financial hub of China, for Covid-19 testing sprint over a period of nine days.
The market started off with another week of unpredictability, crushed from one side by the continuing Russia-Ukraine war, the world’s second-largest crude oil exporter, and the expansion of Covid induced lockdowns in China from the other side, which is the world’s largest crude importer.
Brent crude futures slid as low as 116.00 dollars a barrel. West Texas Intermediate (WTI) crude futures hit a low of 109.30 dollars a barrel.
Both the benchmark contracts rose on Friday by 1.4 percent, marking their first weekly gains in three weeks, with Brent growing over 11.5 percent and WTI by 8.8 percent.
“Shanghai’s lockdown has prompted a fresh sell-off from disappointed investors as they expected such a lockdown would be avoided,” chief analyst Kazuhiko Saito, at Fujitomi Securities Co Ltd said.
He further said that the market had calculated the impact of the attack on Saudi oil distribution facility Aramco, last Friday.
“As OPEC+ is unlikely to raise oil output at a faster rate than in the recent months, we expect the oil market to turn bullish again later this week,” he said.
Shanghai’s city government announced on Sunday that all the firms and factories would suspend manufacturing or will have people working remotely over the nine day period. The decision was taken after the Shanghai reported a new daily record for asymptomatic Covid-19 infections.
Public transports and private ride services will remain suspended during the lockdown, which will further break down the fuel demand.
The Organization of the Petroleum Exporting Countries (OPEC) and allies, known as OPEC+, are due to meet on Thursday.
OPEC+ has till now defied calls from major oil consuming nations to push up the oil outputs. Meanwhile, the group has been elevating output in the tune of 400,000 barrels per day (bpd) since August so as to undo the cuts that were made when the Covid-19 pandemic had hit demands.
In order to overcome the tight supply, the United States is considering releasing oil again from its Strategic Petroleum Reserve that could potentially be bigger than the 30 million barrels that was released earlier this month.
