Oil sinks below US$100 as China lockdowns imperil demand outlook

West Texas Intermediate futures dropped almost 2 per cent to trade near US$100 a barrel after capping a weekly loss. PHOTO: AFP

SINGAPORE (BLOOMBERG) - Oil pushed lower at the start of the week on concerns that a spreading Covid-19 outbreak in China will weigh on global demand.

West Texas Intermediate futures dropped 2.9 per cent to US$99.34 a barrel at 9.24am Singapore time, capping a weekly decline. Brent futures fell 2.6 per cent to US$103.85.

Shanghai reported record daily deaths over the weekend, while the authorities in Beijing warned that the virus was silently spreading. The world’s biggest crude importer is heading for the worst oil demand shock this month since the early days of the coronavirus.

China’s travails with Covid-19 add another source of volatility to an oil market that has been whipsawed by the Russian invasion of Ukraine. The war has fanned inflation, and the European Union is discussing measures to restrict oil imports from Russia. That could tighten the market and drive prices higher.

China has implemented lockdowns in a number of cities as it pursues a Covid-19-zero strategy. Residents in a Beijing district were told to submit to three days of virus testing starting on Monday in a bid to snuff out a rash of cases in the area. Shanghai is entering its fourth week of strict lockdown.

The nation’s demand for petrol, diesel and aviation fuel in April is expected to slide 20 per cent from a year earlier, according to people with inside knowledge of China’s energy industry. That is equivalent to a drop in crude oil consumption of 1.2 million barrels a day, they said.

“Demand worries are back in focus,” said Ms Vandana Hari, founder of Vanda Insights in Singapore, citing China’s virus lockdowns and easing global economic growth. “Risk is skewed to the downside.”

The market is poised for additional supply, adding to bearish signs. Libya is expected to resume output from shuttered fields in the coming days, while the CPC oil terminal on Russia’s Black Sea coast has resumed regular operations after one of two moorings damaged in a storm was repaired.

Brent remains in backwardation - a bullish structure where near-dated contracts are more expensive than later-dated ones - but it has narrowed considerably since early March. The prompt time spread for the benchmark was 51 cents a barrel in backwardation, compared with a high of US$4.64 on March 2.

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