Oil Plummets On Fear Of More China Lockdowns

Meanwhile, Spain receives its first supertanker shipment of crude in six years: File Image/Pixabay

Analysts who warned of unprecedented volatility in oil trading this year were vindicated yet again on Monday, as prices came crashing down to under $100 thanks to traders deciding that China’s Covid lockdowns would have a major impact on demand after all.

West Texas Intermediate settled down $3.53 at $98.54 per barrel and Brent settled down $4.33 at $102.32 per barrel after it was reported that Covid cases were rising in Beijing and that Shanghai had reported record daily deaths (51) over the weekend.

Bob Yawger, director of the futures division at Mizuho Securities USA, pointed out that demand in Shanghai is down 1.2 million barrels per day (bpd) since the lockdowns began and a shutdown of the capital could impact demand even more.

He called the lockdowns “the number one issue in the market right now.”

Warren Patterson, head of commodities strategy at ING, added, "China's zero-COVID policy means that oil demand will be taking a hit as authorities try to bring the outbreak under control."

The news also caused the Shanghai Composite Index to drop 5.1 percent and close at a 22-month low, while Hong Kong’s Hang Seng Index decreased 3.7 percent and Japan’s Nikkei fell 1.9 percent, with the general fear that the lockdowns would exacerbate existing shipping problems and strain already struggling global supply chains.

With their outlook now viewed through a bearish lens, traders regarded previously welcomed developments in a distinctly negative light, to wit: the global market poised for additional supply via the release of strategic reserves stockpiles.

Libya expecting to resume output from closed fields added to the negative sentiment, as did the resumption of output from Russia’s Black Sea CPC oil terminal.

Meanwhile, the sanctions against Russia for invading Ukraine continued to alter global oil transactions: for the first time in over six years, a supertanker delivered U.S. crude to Spain – the latest sign that Europe is increasingly relying on the states to replace supply disruptions caused by the conflict.

Tracking data showed that the vessel Solana delivered some of its 2 million barrels of crude into Bilbao in mid-April before unloading additional oil in Wilhelmshaven, Germany, and Rotterdam.

Germany is reportedly set to receive its second 2022 supertanker of U.S. oil in May.

Russia’s transactions continue to change too, presumably much to the chagrin of countries trying to punish the former Soviet Union for its aggression against Ukraine: on Monday vessel tracking data revealed that a total of 40 tankers loaded about 28 million barrels from Russian export terminals bound for Asia.

That put average seaborne crude flows at 4 million bpd, up by 25 percent against the week ended April 15.