Oil falls by more than $3/bbl as China COVID-19 cases surge

Nurluqman Suratman

14-Mar-2022

SINGAPORE (ICIS)–Oil prices fell by more than $3/bbl on Monday amid growing fears that surging COVID-19 cases in China will lead to a slew of fresh lockdowns which would hit demand.

China is the world’s second biggest economy and largest oil importer.

Hopes over ceasefire negotiations between Russia and Ukraine were also exerting downward pressure on prices.

Reports that discussions to revive the 2015 Iran nuclear accord has been suspended, however, provided some market support.

03:00  GMT Contract Low High Open Last Previous Change Low Change
Brent May 108.31 113.15 113.15 109.3 112.67 -3.37 -4.36
WTI Apr 104.77 109.72 109.42 105.98 109.33 -3.35 -4.56

Investor focus has shifted to the latest COVID-19 developments in China, which reported 1,807 new local symptomatic cases on 13 March.

“This will raise concern over the potential hit to demand. But also importantly, it suggests that China is not ready to let go of its zero-covid policy,” Dutch banking and financial services firm ING said in a note on Monday.

Shanghai has announced school closures, while Shenzhen joined other northeastern cities to go into lockdown as China’s daily coronavirus case count soared on 12 March to more than 3,300 – the highest recorded since early 2020.

In Shenzhen, bus and subway systems were shut, and businesses, except those providing essential services, have been closed.

The lockdown in Shenzhen is expected to last until 20 March and is expected to cause disruption to the supply chain.

Shenzhen is China’s manufacturing hub for electronics and is home to key ports, including Yantian and Nanshan ports.

Meanwhile, Hong Kong chief executive Carrie Lam said on 12 March that the pandemic in the city may not have peaked yet.

Hong Kong has recorded nearly 700,000 COVID-19 cases and about 3,500 deaths to date, with sharp spikes recorded in the past two weeks.

The coronavirus outbreak, believed to have originated in Wuhan in central China in late 2019, is on its third year.

As of 12 March, China has reported a total of 115,466 confirmed cases in the mainland, with 4,636 deaths, according to official data.

Several countries in Asia are seeing surging COVID-19 cases caused by the more infectious Omicron variant of the coronavirus.

RUSSIA-UKRAINE TALKS IN FOCUS
Formal talks between Russia and Ukraine are set to resume on Monday, Mykhailo Podolyak, adviser to Ukrainian President Volodymyr Zekenskyy and part of the negotiating team, said in a post on Twitter early on Monday.

“Negotiations go non-stop in the format of video conferences… On Monday, March 14, a negotiating session will be held to sum up the preliminary results,” Podolyak said.

US deputy secretary of state Wendy Sherman had said on 13 March that Russia is showing signs of willing to have substantive negotiations over Ukraine.

Russia’s invasion of Ukraine now on its third week has been roiling the global energy markets.

Last week, Brent crude had shed 4.8% last week and US WTI slumped by 5.7% – their steepest weekly decline since November 2021.

Both benchmarks early last week hit their highest levels since 2008 on supply concerns, with the prospect of Russian oil being taken out of the market amid the Ukraine war.

The US has decided to ban Russian oil imports, while the UK will phase them out by the end of 2022.

Focus article by Nurluqman Suratman

Thumbnail photo: The suns sets over buildings in Shenzhen, China, as seen from a hill in Hong Kong, China on 9 March 2022. (By JEROME FAVRE/EPA-EFE/Shutterstock)

Click here to read the Ukraine topic page, which examines the impact of the conflict on oil, gas, fertilizer and chemical markets.

Visit the ICIS Coronavirus topic page for analysis of the impact on chemical markets and links to latest news.

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