Oil slips as Shanghai lockdowns stoke demand fears

A general view shows Lukoil company’s oil refinery in Volgograd, Russia April 22, 2022. REUTERS/REUTERS PHOTOGRAPHER

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  • Shanghai fences off COVID-hit areas, fueling fresh outcry
  • EU mulls ‘smart sanctions’ on Russian oil
  • Libyan NOC says Zawiya oil refinery damaged after armed clashes

LONDON, April 25 (Reuters) – Oil fell nearly 5% to its lowest level in nearly two weeks on Monday, extending last week’s decline as concern grew that prolonged lockdowns of COVID-19 in Shanghai and potential increases in US interest rates would hurt global growth and oil demand.

In Shanghai, authorities erected fences outside residential buildings, sparking further public outcry. In Beijing, many have started stockpiling food, fearing a similar lockdown after a few cases emerged. Read more

“It looks like China is the elephant in the room,” said OANDA analyst Jeffrey Halley. “Tightening COVID-zero restrictions in Shanghai and fears that Omicron has spread to Beijing have torpedoed sentiment today.”

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Brent crude was down $4.91, or 4.6%, at $101.74 a barrel at 0931 GMT and touched $101.20 earlier in the session, the lowest since April 12. U.S. West Texas Intermediate (WTI) crude fell $5.00, or 4.9%, to $97.07.

“Shanghai shows no signs of abandoning its strict zero-COVID policy; instead pledging to tighten enforcement of COVID restrictions, which could further hurt oil demand,” said Fiona Cincotta, analyst at the City Index.

Oil also weakened on the prospect of higher US interest rates, which are boosting the US dollar. A strong dollar makes commodities quoted in dollars more expensive for other currency holders and tends to reflect increased risk aversion among investors. Read more

Both oil benchmarks lost nearly 5% last week on demand concerns and Brent fell sharply after hitting $139, the highest since 2008, last month.

Oil was supported by tight supply. Russia’s invasion of Ukraine has already reduced supply due to Western sanctions and customers avoiding buying Russian oil, but the market could tighten further with a possible EU ban on crude Russian.

The Times reported on Monday that the bloc was preparing “smart sanctions” against Russian oil imports, citing European Commission Executive Vice President Valdis Dombrovskis. Read more

Outages in Libya are also providing support. The OPEC member is losing more than 550,000 barrels a day in production due to the unrest, as the Zawiya oil refinery suffered damage after armed clashes. Read more

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Reporting by Alex Lawler Additional reporting by Yuka Obayashi Editing by David Goodman

Our standards: The Thomson Reuters Trust Principles.

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