In Shanghai, China, a lockdown intended to curtail a coronavirus outbreak has resulted in new concerns about the demand for crude oil around the world.
Crude oil futures fell Monday, fueled by concerns about demand as China began its biggest coronavirus lockdown since the beginning of the pandemic in the country’s most populated city.
The two-phase lockdown in Shanghai, which has a population of 25 million people, brings new fears of additional strain on the global economy because China is the world’s largest importer of crude oil. Sanctions following Russia’s invasion of Ukraine have already caused major disruptions in the industry, helping gas prices in the United States to soar to an all-time high by early March.
“China oil demand is approximately 15 million barrels per day,” Andy Lipow, president of Lipow Oil Associates LLC in Houston, said in a Bloomberg report. “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.”
According to a published report from ZeroHedge, an economic information source owned by ABC Media, Ltd., West Texas Intermediate and Brent futures fell more than 4% each at the announcement of the Shanghai lockdown.
“Growth risks from inflation and tightening monetary policy also hit sentiments, pushing down sovereign bonds and equity markets were mixed,” ZeroHedge reported.
By the end of Monday, the Associated Press reported that U.S. crude oil markets fell by 7% and Brent crude by 6.8%.
“Oil prices are up about 40% globally over concerns about tighter supplies as demand remains strong. Higher oil prices are also raising concerns that already persistently high inflation could be worsened, further threatening global economic growth,” the Associated Press article states.
The Shanghai lockdown comes one day before Russia and Ukraine’s first peace talks in 2 weeks.
Expectations are high that a deal reached between the countries could help lift sanctions and lessen the effect of China’s lower demand for oil as the country works to control its Covid-19 outbreak.
Bloomberg reported Monday that “United Arab Emirates Energy Minister Suhail Al-Mazrouei said additional crude supplies won’t be added if the market is balanced, and resources are in the market. OPEC+ isn’t focused on whether the specific loss of Russian shipments is causing an imbalance, he added. If no alterations are made, the cartel will ratify an increase of 430,000 barrels a day for the month of May as previously announced.”