Oil falls 3% as China's Covid-19 flare-up worsens, Yemeni rebels pause

HONG KONG (BLOOMBERG) - Oil retreated as China's worsening virus resurgence raised concerns about demand in the world's biggest crude importer, while rebels in Yemen announced a temporary pause in hostilities against Saudi Arabia.

West Texas Intermediate (WTI) and Brent futures fell around 3 per cent in early Asian trading on Monday (March 28) after Shanghai said it will lock down half of the city in turns to conduct mass Covid-19 testing to try and stem an outbreak.

WTI was down 2.7 per cent to US$110.80 at 7.46am Singapore time, while Brent dropped 2.8 per cent to US$117.29.

Shanghai - a city of 25 million people - will first lock down areas east of the Huangpu River, which includes its financial district and industrial parks, for four days starting from Monday. Then the restrictions will shift to the city's west for another four days, according to a statement from the local government.

Yemen's Houthi rebel leader announced a three-day truce on Saturday after an escalation of attacks on the kingdom over the past week, according to a television report.

Oil is still poised for a fourth monthly gain after Russia's invasion of Ukraine roiled markets. Most buyers are shunning the Opec+ producer's crude as they try and navigate financial sanctions and reputational risks, while Germany is planning to wean itself off almost all Russian fossil fuels within two years. Fighting in Europe continues, with the war now in its second month.

Crude rose on Friday after Houthi rebels claimed responsibility for a series of attacks on Saudi Aramco facilities, including an oil storage site in Jeddah. Just two hours after the halt to hostilities was announced on Saturday, the rebels accused Saudi-led coalition fighter jets of launching strikes on Houthi targets in the Yemeni capital Sanaa, according to Al-Masirah TV.

The United States, meanwhile, said reviving a nuclear deal with Iran may not happen soon after recent requests from Teheran, including that Washington removes the Islamic Revolutionary Guard Corps from its list of terrorist organisations. Iran is an ally of Russia, and its war in Ukraine is also complicating negotiations.

Brent remains deeply backwardated, where near-dated contracts are more expensive than later-dated ones, although it has eased over the past week. The prompt time spread for the global benchmark was US$3.04 a barrel in backwardation, compared with US$3.70 a week ago.