Oil Falls With China’s Worsening Virus Flare-Up, Growth Concerns

Mar 28, 2022

(Bloomberg)Oil retreated as China’s worsening virus resurgence raised concerns about demand in the world’s biggest crude importer, and as worries spread over a broader economic slowdown.West Texas Intermediate and Brent futures fell more than 4% each after authorities in Shanghai said they will lock down half of the city in turns for mass Covid-19 testing. Growth risks from inflation and tightening monetary policy also hit sentiments, pushing down sovereign bonds and equity markets were mixed.

Russia’s invasion of Ukraine continues to disrupt supplies of key commodities — oil is heading for a fourth month of gains despite starting lower this week — and that is stoking inflation. Russian oil supply is getting squeezed as many western buyers shun purchases. The country’s exports from March 17-23 fell by more than a quarter from the previous week, according to industry data.

However, some crude is finding its way into Asia. East-bound exports of a few grades from Baltic and Black Sea ports rose to the highest in almost two years during the first 23 days of March, according to Vortexa Ltd. data. Moscow is still able to sell its crude due to price discounts and aims to keep output steady even amid unprecedented economic sanctions, Deputy Prime Minister Alexander Novak said last week.

Oil retreated on Monday as China's Covid resurgence worsens

Oil’s rally over the past month has been led by concerns over Russian supply, but demand worries are now starting to emerge with the spread of the virus in China. Shanghai — a city of 25 million people — will first lock down areas east of the Huangpu River, which includes its financial district and industrial parks, for four days starting Monday. Then the restrictions will shift to the city’s west for another four days, according to a statement from the local government.

ROO.AI Oil and Gas Field Service Software

“There is a similar concern that we’ve seen in the past about demand destruction due to mobility restrictions,” said Giovanni Staunovo, a commodity analyst at UBS Group AG’s global wealth management unit.

A temporary pause in hostilities by Yemen’s Houthis against Saudi Arabia was also contributing to lower oil prices on Monday, Staunovo said. The group’s rebel leader announced a three-day truce on Saturday after an escalation of attacks on the Saudis over the past week, according to a TV report.

Prices
WTI for May delivery fell as much as 4.9% to $108.28 a barrel, and was 4.8% lower as of 12:11 p.m. in London Brent for the same month lost 4.4% to $115.38

The U.S., meanwhile, said reviving a nuclear deal with Iran is not imminent after recent requests from Tehran that included Washington removes the Islamic Revolutionary Guard Corps from its list of terrorist organizations. Iran is an ally of Russia, and its war in Ukraine is also complicating negotiations.