(Bloomberg) — Oil dropped as China issued fresh virus lockdowns raising concerns about demand in the world’s biggest crude importer.
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Futures in New York fell more than $9 to trade near $105 on Monday. Markets sold off after authorities in Shanghai said they will lock down half of the city in turns for mass Covid-19 testing. Traders fear the lockdowns could impact global crude demand outlook. Global growth risks from inflation and tightening monetary policy also hit market sentiments, earlier pushing sovereign bonds lower.
“China oil demand is approximately 15 million barrels per day,” said Andy Lipow, president of Lipow Oil Associates LLC in Houston. “The magnitude of sell-off reflects fears that Covid lockdowns in China could spread, significantly impacting demand at a time when the oil market is trying to find alternatives to Russian oil supplies.”
Russia’s invasion of Ukraine continues to disrupt supplies of key commodities, adding to inflationary pressures on the global economy. Oil is heading for a fourth month of gains as a tight market is exacerbated by Russian oil supply getting shunned by buyers. The country’s exports from March 17-23 fell by more than a quarter from the previous week, according to industry data.
Some Russian 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. date. Moscow is still able to sell its crude due to price discounts and aims to keep output steady even amid unprecedented sanctions, Deputy Prime Minister Alexander Novak said last week.
Demand concerns are 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.
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.
The US, 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.
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