December 7, 2022

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Oil falls on fears of weak Chinese demand

Oil falls on fears of weak Chinese demand

A worker holds a nozzle to pump gasoline into a car at a gas station in Mumbai, India, May 21, 2018. (Reuters) / Frances Mascarenhas

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  • Shanghai launches two-stage lockdown as COVID-19 cases increase
  • OPEC + meets on Thursday
  • Peace talks between Russia and Ukraine may start Tuesday – the Kremlin
  • More emergency releases are expected for the US Reserves

LONDON (Reuters) – Oil prices fell more than $6 on Monday as concerns grew about weak fuel demand in China after the Shanghai financial center closed in efforts to stem a surge in coronavirus cases.

Brent crude futures fell to $113.72 a barrel and traded as low as $5.97, or 4.9%, at $114.68 at 1212 GMT.

US West Texas Intermediate crude futures recorded a low of $106.81 a barrel, and fell $5.93, or 5.2%, to $107.97.

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Both benchmark contracts rose 1.4% on Friday, posting their first weekly gains in three weeks, with Brent up 11.8% and WTI up 8.8%.

Shanghai entered a two-stage lockdown for 26 million people on Monday in a bid to curb the spread of the coronavirus. Read more

“This also raises growing concerns that China’s strict non-proliferation policy for the novel coronavirus will lead to frequent shutdowns in major business centres,” Carsten Fritsch, an analyst at Commerzbank, said in a note.

Bjarne Schieldrop, senior commodity analyst at SEB Bank, said oil demand in China, the world’s largest importer of crude oil, is expected to be 800,000 barrels per day weaker in April than “normal” levels as a result.

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Hopes for reconciliation from peace negotiations between Russia and Ukraine, which could start in Turkey on Tuesday according to the Kremlin, have also weighed on prices. Read more

The optimistic reaction to a missile attack by Yemeni Houthis on a Saudi oil distribution facility ended on Friday, said Kazuhiko Saito, chief analyst at Fujitomi Securities. Read more

But he expected the oil market to turn bullish when the Organization of the Petroleum Exporting Countries (OPEC +) and its allies meet on Thursday to discuss a planned increase in production quotas of 432,000 barrels per day. Saito said that the group, which has so far resisted calls to speed up production increases to ease the tight supply of crude, “was unlikely to raise oil production faster than it has been in recent months.”

Analysts said a supply shortfall loomed, as spot Russian crude in April would struggle to find buyers. Russian crude oil flows were slightly affected in March as most volumes shrunk before the invasion.

However, countries such as India and China still buy Russian crude, and Indonesian state energy company PT Pertamina [RIC:RIC:PERTM.UL] He was the last to announce that he was thinking of buying Russian oil. Read more

“Expectations are for a loss of 2.5 million barrels per day of crude and Russian products in April,” Scheldrop said, adding that diesel shortages would increase demand for Brent and light sweet crudes.

OECD stocks are at their lowest since 2014.

To help alleviate supply shortfalls, the US is considering another release of oil from the Strategic Petroleum Reserve (SPR), but this may be limited given that inventories are already low.

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US rigs added oil rigs for the 19th consecutive month but at a slower pace since 2020, despite the government’s urging for producers to increase production.

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Additional reporting by Yuka Obayashi in Tokyo, Sonali Paul in Melbourne and Florence Tan in Singapore. Editing by David Evans and Louise Heavens

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