Oil drops on concerns about China shutdowns, freeing up reserves

An oil and gas pump lifter near Granum, Alberta, Canada, May 6, 2020. REUTERS/Todd Korroll/File Photo

April 11 (Reuters) – Oil prices fell more than $2 a barrel on Monday, after the second consecutive weekly decline after global consumers announced plans to release a record volume of crude and petroleum products from strategic stocks and as lockdowns continued in China.

Brent crude fell $2.05, or 2.0 percent, to $100.73 a barrel by 0620 GMT, while US West Texas Intermediate crude lost $2.17, or 2.2 percent, to $96.09. Last week, Brent was down 1.5% while US Oil was down 1%. For several weeks, the standards have been at their most volatile since June 2020.

The market has been watching developments in China, where authorities have kept Shanghai, a city of 26 million people, closed under a “zero tolerance” policy for COVID-19. China is the world’s largest oil importer.

Concern about China’s growth was the main reason for lower oil prices on the day, said Jeffrey Haley, chief market analyst at OANDA, as the Shanghai shutdown showed no signs of lifting, and Guangzhou looked to start mass virus testing.

“Concerns are now growing that if the Chinese Omicron wave spreads to other cities, its no-COVID policy will see extended mass lockdowns negatively impacting both industrial production and domestic consumption,” he added.

International Energy Agency (IEA) member states will release 60 million barrels over the next six months, with the United States matching that amount as part of its 180 million barrel release announced in March. The moves are aimed at making up for the shortfall in Russian crude after Moscow came under heavy sanctions following its invasion of Ukraine. Read more

“We expect SPR volumes – around 273 million barrels in total and 1.3 million barrels per day over the next six months – to go a long way in the short term toward offsetting 1 million barrels per day of Russian oil,” said JPMorgan analysts. In the “Offer we expect to remain offline permanently” note.

However, it is not clear whether that will fully compensate for the shortfall in Russian oil as exports continue, with India tempted by deep cuts, which has increased imports.

President Joe Biden will meet virtually on Monday with Indian Prime Minister Narendra Modi, the White House said, at a time when the United States has made clear it does not want to see a small increase in Russian energy imports from India. Read more

In the United States, energy companies last week added oil and natural gas rigs for the third week in a row as Washington seeks more production to help its allies dump Russian oil and gas. Read more

Additional reporting by Florence Tan and Isabel Kwa in Singapore; Additional reporting by David Gavin in New York. Edited by Muralikumar Anantharaman

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