New Covid-19 Restrictions Dragged Oil Prices in China

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New Covid-19 Restrictions Dragged Oil Prices in China
31 Mar 2022
6 min read

News Synopsis

With the new Covid-19 regulation in China, oil prices on Monday were expected to fall further below recent highs, with lower fuel demand expected to ease some of the pressure on the global oil market.

US oil prices came down by 7% to $105.96 per barrel. Oil prices remain sharply higher since the invasion of Ukraine in February, as Western sanctions and boycotts against Russia have effectively cut worldwide supply. The global price benchmark, Brent crude dropped about 6.8% to $112.48.

Commerzbank analysts wrote a note to clients on Monday after the blockade of half of Shanghai due to an increase in incidents. Public transportation has been suspended and some manufacturers have shut down. Tesla Inc has also said it would suspend production there for four days.

After Russia's invasion of Ukraine and prices rising to highs for the first time in years, slowing demand from China could ease pressure on the global market. Traders, banks, insurance companies and shipping companies are avoiding Russian oil and shortages are starting to hit the market.

Western drilling companies like BP PLC and Shell PLC have withdrawn from Russia, as have companies like Halliburton Co. and Baker Hughes Co. that provide engineering services in oil fields. Russian exporters sell crude oil at significant discounts on off-market transactions, allowing buyers to protect their identities from the stigma of dealing with Russian companies.

TWN In-Focus