Oil Prices Drop More than $5 on Rising Lockdown in China

Crude oil prices declined on Monday as concerns over demand in China dragged on oil outlook after Shanghai launched a two-stage lockdown to contain an increase in COVID-19 cases.

Brent crude oil, a global benchmark for Nigerian oil, shed $5 to $116.08 a barrel as of 10:16 am Nigerian time. While the U.S. West Texas Intermediate (WTI) crude oil dropped $5.30 to $108.28 a barrel.

On Monday morning, China’s financial hub, Shanghai launched a two-stage lockdown that includes the closing of bridges and tunnels, and also restricted highway traffic to contain rising COVID-19 infections in the world’s most populous nation.

Oil experts are now expecting the decision to impact crude oil demand given that China is the world’s largest importer of the commodity.

“Shanghai’s lockdown prompted a fresh sell-off from disappointed investors as they expected such a lockdown would be avoided,” said Kazuhiko Saito, chief analyst at Fujitomi Securities.

This, coupled with the ongoing Russia-Ukraine war and Yemen’s Houthis attack on Saudi Arabia continued to stroke global crude oil uncertainty ahead of the OPEC meeting on Thursday.

However, sanctions imposed on Russian oil and OPEC’s inability to meet oil production targets will continue to sustain oil bullish run in the near term, especially with the largest OPEC producer, Saudi Arabia’s oil facility under intermittent attack.

On Sunday, Yemen’s Houthis announced they attacked Saudi energy facilities on Friday. This was later corroborated by Saudi that Aramco’s petroleum products distribution facility at Jeddah was hit, causing a fire in two storage tanks but no casualties.

Therefore, a drop in Chinese crude oil demand should be offset by a drop in oil supply due to all the aforementioned factors.