Oil Down as Covid Outbreak Reaches Record Levels in China

Oil fell as China’s largest Covid-19 outbreak in two years heightens concerns about demand from the world’s biggest crude importer.

West Texas Intermediate dropped 4% to settle just over $94 a barrel, the lowest level since late February. Virus cases are rising in Shanghai, with millions under lockdown and no clarity on when restrictions will be lifted. The uptick in cases has disrupted port operations and prompted some refiners to trim crude-processing rates.

Oil has given up most of the gains earned since Russia invaded Ukraine in late February following a tumultuous period of trading. A weakening structure in the futures curve in recent days has pointed to diminishing concerns about a lack of sufficient supply and, so far, there’s no sign that Russian crude exports are diminishing.

The lockdowns are “truly changing the calculus of the market that was so worried about the sufficiency of supply out of Russia,” said John Kilduff, co-founder at Again Capital LLC. Combined with the historic release of strategic reserves, “it’s really taken a lot of the supply fears out of the market.”

The war aggravated already rampant inflation and prompted the U.S. and its allies to release strategic crude reserves to cool prices. On Monday, OPEC Secretary-General Mohammad Barkindo said that it would be impossible to fully replace Russian barrels, and that oil markets could experience a loss of as much as 7 million barrels a day.

Prices surged above $100 in the immediate aftermath of Russia’s invasion but with the return of lockdowns in China, oil analysts are reducing demand forecasts. Shanghai reported a record 26,000-plus new coronavirus cases Sunday and the southern metropolis of Guangzhou is implementing a series of restrictions as China struggles to halt the spread.

Factory-gate prices in China rose more than expected last month as oil climbed, putting pressure on manufacturers already struggling to operate amid repeated virus outbreaks.

Prices:

• WTI for May delivery fell $3.97 to settle at $94.29 a barrel in New York.
• Brent for June settlement fell $4.30 to settle at $98.48 a barrel.

Russian crude oil shipments in the seven days to April 8 continued a rebound that began the previous week after consistently falling since the nation’s Feb. 24 invasion of Ukraine. Weekly shipments hit almost 4 million barrels a day in the first full week of April, the highest level seen so far this year.