COVID-19 mass testing in China dragged on global oil prices on Monday as concerns over another phase of the virus outweighed concerns over tight supply.
Brent crude oil, the international benchmark for Nigeria’s crude oil, dropped by $3.21 to $104 a barrel as of 3:30 pm Nigerian time. The U.S. West Texas Intermediate shed dipped by $2.17 to $102.62 a barrel.
The oil market was rattled by reports that China, the world’s most populous nation, had discovered the first highly transmissible Omicro subvariant in Shanghai and that new cases had jumped to 63 from 52 previously reported.
“The primary driver behind the move lower is the growing concerns of a global economic slowdown and with that the affordability of sustained high oil prices,” Investec Risk Solutions said in a note.
“The combined impact of concerns of global economic slowdown and a renewed COVID outbreak could hardly come at a worse time for oil markets.”
This combined with the uncertainty surrounding western nations’ plans to sanction Russian oil in an effort to tame President Vladimir Putin is responsible for the uncertainty in the global oil market and could lead to catastrophic consequences if Russia responded as projected by JP Morgan.
JP Morgan said the market was caught between concern over a potential halt to Russian supplies and a possible recession.
“Macro risks are becoming more two-sided. A 3 million barrel per day retaliatory reduction in Russian oil exports is a credible threat and if realised will drive Brent crude oil prices to roughly $190/bbl,” the bank said in a note.
“On the other hand, the impact of substantially lower demand growth under recessionary scenarios would see the Brent crude oil price averaging around $90/bbl under a mild recession and $78/bbl under a scenario of a more severe downturn.”
