By Adedapo Adesanya
The price of the international benchmark crude, Brent, fell below the $100 per barrel mark on Monday, precisely trading at $99.01 per barrel after losing 3.76 per cent or $3.77 as COVID-related lockdowns in China weighed on demand expectations, while the coordinated massive release from oil reserves eased fears of supply shortages.
Also, the United States West Texas Intermediate (WTI) crude futures depreciated by $3.41 or 3.47 per cent yesterday to trade at $94.85 per barrel.
With this development, oil prices have now erased most of their gains since the start of the Russian invasion of Ukraine on February 24.
Analysts note that the continued spread of COVID-19 in its place of origin, China is the most bearish element dictating the direction of the market.
China is the world’s largest oil importer, and the Shanghai area, its financial hub, which has been in lockdown for more than a week, consumes roughly 4 per cent of the country’s crude.
If the spread is not contained and more states record large numbers, it could result in a significant number of lockdowns and the impact on oil markets could be substantial.
Shanghai, one of China’s wealthiest cities, with 26 million residents, reported a record more than 25,000 new infections during the weekend. And measures under the Chinese zero-COVID policy could weigh on fuel demand.
Authorities started easing some restrictions on Monday, as residents became increasingly frustrated with the policy.
This is creating a worry now for the demand aspect of the market after the supply has been the major source of concern in recent times.
Last week, the International Energy Agency (IEA) announced that its member countries would release 120 million barrels from emergency stockpiles, of which 60 million barrels would be from the US.
The announcement followed the US Biden-led administration saying it would release 180 million barrels from the Strategic Petroleum Reserve(SPR) in an effort to alleviate soaring prices.
The market will also weigh the likely outcome of a meeting between the European Union (EU) and the Organisation of the Petroleum Exporting Countries (OPEC) which is meant to discuss ways to step up sanctions against Russia, including an oil embargo.
Since the Russian invasion of Ukraine, OPEC and the larger OPEC+ group, including Russia, have not commented on the war and have not found the need to boost output more than planned, saying that the high oil prices are the result of “geopolitical” events, rather than a case of very tight market fundamentals.
However, Europe is split on an immediate oil embargo, with the biggest economy, Germany, not willing to go for it, for now, saying an oil ban would plunge the country and Europe into a deep recession.
