Oil dives 6pc on China lockdowns

NEW YORK: Oil slumped about 6 percent on Monday to its lowest in two weeks on growing worries about the global energy demand outlook due to prolonged Covid-19 lockdowns in Shanghai and potential increases in U.S. interest rates.

In Shanghai, authorities have erected fences outside residential buildings. In Beijing, many people have begun stockpiling food, fearing a similar lockdown after the emergence of a few cases of Covid-19.

"It seems that China is the elephant in the room," said Jeffrey Halley, analyst at brokerage OANDA. "The tightening Covid-zero restrictions in Shanghai, and fears Omicron has spread in Beijing, torpedoed sentiment today."

Brent futures fell $6.17, or 5.8 percent, to $100.48 a barrel. U.S. West Texas Intermediate (WTI) crude fell $5.91, or 5.8 percent, to $96.16.

"Shanghai shows no signs of letting up its strict zero-Covid policy; instead vowing to step up the enforcement of Covid restrictions, which could hurt oil demand further," said City Index analyst Fiona Cincotta.

Global markets have also been stung by the prospect of a sharp increase in US interest rates.

"Market moods have deteriorated as the Covid situation in China is not improving and the media is hinting that Beijing could be next in line for a lockdown after Shanghai and several other major cities," said XTB analyst Walid Koudmani.

"As China is the second largest economy in the world, the situation ... has a big impact on commodity markets with oil and industrial metals dropping significantly."

Both benchmarks were on track for their lowest closes since April 11. Both lost nearly 5 percent last week and Brent has retreated sharply after hitting $139 a barrel last month, its highest level since 2008.

The Chinese yuan was set for its biggest three-day losing streak in nearly four years on worries of an economic slowdown in the world's biggest oil importer.

Oil gained support earlier in the year from tight supplies after Russia's Feb. 24 invasion of Ukraine caused customers to avoid buying Russian oil due to Western sanctions. But, the market could tighten further with a European Union (EU) ban on Russian crude.

The EU is preparing "smart sanctions" against Russian oil imports, according to a report in The Times of London that cited the European Commission's executive vice president, Valdis Dombrovskis.

Russia's NK Rosneft PAO failed to sell oil in a jumbo tender after demanding prepayment in roubles, five traders said, meaning the country's top oil company must find ways to divert more crude to Asian buyers via private deals.

A shipping unit of France's TotalEnergies SE has provisionally chartered a tanker to load Abu Dhabi crude in early May for Europe, the first such shipment in two years, according to traders and a shipping report.