Oil falls on fears of weak Chinese demand

A worker holds a nozzle to pump gasoline into a car at a gas station in Mumbai, India, May 21, 2018. (Reuters) / Frances Mascarenhas

LONDON (Reuters) – Oil prices fell more than $9 on Monday as fears grew over weak fuel demand in China after the financial hub in Shanghai was closed to curb a surge in coronavirus cases.

Brent crude futures slipped to $111.17 a barrel and were trading as low as $9.02, or 7.4%, at $111.63 a barrel by 1403 GMT.

US West Texas Intermediate crude futures fell $8.88, or 7.8 percent, to $105.02, after touching the lowest level at $104.75.

Shanghai entered a two-stage lockdown for 26 million people on Monday in a bid to curb the spread of COVID-19. Read more

“This also raises growing concerns that China’s strict non-coronavirus policy will lead to frequent shutdowns in major business centres,” Commerzbank analyst Carsten Fritsch said in a note.

Bjarne Schieldrop, chief commodities analyst at SEB Bank, said oil demand in China, the world’s largest importer of crude, is expected to be 800,000 bpd weaker than normal in April.

Hopes for reconciliation in peace negotiations between Russia and Ukraine, which could begin in Turkey on Tuesday, also weighed on prices. Read more

However, analysts expect more bullish sentiment when the Organization of the Petroleum Exporting Countries (OPEC) and its allies, known as OPEC+, meet on Thursday to discuss a planned increase of about 432,000 barrels per day in production quotas.

Kazuhiko Saito, chief analyst at Fujitomi Securities, said the group, which has so far resisted calls for faster production increases to ease crude supply shortfalls, is unlikely to raise oil production any faster than in recent months.

Meanwhile, analysts said a supply shortfall was looming, as spot quantities of Russian crude for April were expected to struggle to find buyers. Russian crude flows were slightly affected in March as most volumes shrank before the conflict.

On Monday, the official Russian news agency TASS quoted Kremlin spokesman Dmitry Peskov as saying that falling orders for Russian oil will be replaced by contracts from Southeast Asian countries.

Countries such as India and China still buy Russian crude and state-run Indonesian energy company PT Pertamina [RIC:RIC:PERTM.UL] The last to announce that he is considering buying Russian oil. Read more

However, analysts still expect oil markets to feel the effects of broadly avoiding Russian oil.

“Expectations are for a loss of 2.5 million barrels per day of crude and Russian products in April,” SEB’s Scheldrop said, adding that diesel shortages would increase demand for Brent and light crude.

UAE Energy Minister Suhail Al Mazrouei said on Monday that oil should not be withheld from any country because “the world is in dire need” of supplies. Read more

OECD stocks are at their lowest since 2014.

To help alleviate supply shortfalls, the United States is considering another release of oil from the Strategic Petroleum Reserve (SPR), but this may be limited given that inventories are already low.

US rigs added oil rigs for the 19th consecutive month but at a slower pace since 2020, despite the government’s urging for producers to increase production.

Additional reporting by Yuka Obayashi in Tokyo, Sonali Paul in Melbourne and Florence Tan in Singapore; Editing by David Evans and David Goodman

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