Oil prices slumped to start the week on Monday as investors turned their attention to a worsening COVID outbreak in China, and the potential hit to demand for the commodity.
West Texas Intermediate crude for May delivery
dropped $4.80, or 4.2%, to $109.12 a barrel. The contract rose 1.4% to settle at $113.90 a barrel on the New York Mercantile Exchange on Friday, gaining 10.5% for the week, according to Dow Jones Market Data.
May Brent crude
the global benchmark, sank $5.09, or 4.2%, to $112.40 a barrel. Brent rose 1.4% to $120.65 a barrel on Friday on ICE Futures Europe. Prices surged nearly 12% last week.
April natural gas
rose 0.3% to $5.587 per million British thermal units, af ter ending up nearly 15% last week.
fell 2.5% to $3.38 a gallon, after gaining 7.1% last week, while April heating oil
dropped 3.5% to $3.970 a gallon. Prices surged over 14% last week.
China began to lock down the bulk of its financial capital and largest city Shanghai on Monday. The two-phased rollout will be the most extensive since officials confined the entire population of Wuhan — the epicenter of the original outbreak — to their homes in early 2020.
“Global markets seem to be a bit nervous about the effectiveness of China’s zero-tolerance policy toward COVID and the potential for more demand and supply chain disruptions as we might be only dealing with the tip of the iceberg,” said Stephen Innes, managing partner at SPI Asset Management, in a note to clients.
But Innes said oil prices still have underlying support from unexpected crude flow disruptions in Kazakhstan’s Caspian Pipeline Consortium (CPC) terminal on Russia’s Black Sea coast.
“Severe weather caused damage to two of the terminal’s three mooring systems, and the resulting halt to loadings impacts around 1mb/d of crude flows – significant in the context of already-tight markets. Repairs will reportedly take at least one month, adding to near-term supply uncertainty and supporting oil prices.” he said.
Another geopolitical hot spot appeared to cool on Monday, as Iranian-backed rebels in Yemen reportedly offered a truce on Saturday. That came after Saudi Arabia and its allies attacked targets in that country in response to a Houthi rebel attack on an oil depot Friday in Jeddah.
Investors remained wary of escalating tensions and violence over Russia’s ongoing war in Ukraine, and the potential impact on energy supplies. Several European Union countries have resisted pressure to join a U.K. and U.S. embargo on Russian oil due to their heavy reliance on those supplies.
Russian and Ukraine negotiators will resume talks on Monday.
War in Ukraine: Zelensky accuses West of cowardice in plea for jets, tanks
Markets are also looking ahead to Thursday’s meeting of OPEC and non-OPEC members.
“Investors wonder if OPEC will finally boost its oil output to counter the Russian supply disruptions at this week’s meeting, as a potential boycott on Russian oil could lead to a 3-million-barrel fall per day from April, even though the Europeans are not up for banning the Russian oil for now,” said Ipek Ozkardeskaya, senior analyst at Swissquote, in a note to clients.
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