By Adedapo Adesanya
Oil prices opened the first session of the week in the bearish territory as demand fears were sparked following a lockdown in the Chinese city of Shanghai due to the high number of COVID-19 infections.
Brent crude plunged 9.09 per cent or $10.97 to close at $109.7 per barrel as the United States West Texas Intermediate (WTI) crude dropped 9.14 per cent or $10.41 to trade at $103.5 a barrel.
The market reacted as China’s biggest city Shanghai began a two-stage lockdown Monday as authorities attempt different strategies to maintain growth while trying to control the country’s worst COVID-19 outbreak since the pandemic began.
The country’s financial hub accounts for about 4 per cent of China’s oil consumption.
The city-wide lockdown measures include orders to work from home as well as the suspension of public transit and ride-hailing, Shanghai city announced Sunday night. Previously, only specific neighbourhoods had faced temporary lockdowns to control clustered outbreaks.
The initial phase will run from Monday to Friday morning and apply to the eastern part of the city where the financial centre is, the government said; while the second phase will apply to the western part of the city, and run from Friday morning to the afternoon of the following Tuesday, April 5.
Analysts noted that Shanghai’s lockdown prompted a fresh sell-off from disappointed investors as they expected such a lockdown would be avoided.
Also pressuring oil prices, Ukraine and Russia will likely resume peace talks. Both warring nations are set to meet in Istanbul on Tuesday for their first peace talks in over two weeks.
Sanctions imposed on Russia after it invaded Ukraine on February 24 have curtailed oil supply and earlier this month sent prices to 14-year highs.
A successful peace talk between both nations could lead to an easing of sanctions or avoidance of Russian oil by the West.
It was also disclosed that this could lead to the reviving of the paused Iranian nuclear deal.
The market is also waiting on a planned meeting on Thursday by the Organisation of the Petroleum Exporting Countries (OPEC) and allies, collectively known as OPEC+.
The group will likely stick to plans for a modest increase in oil output in May, several sources close to the group said, despite a surge in prices due to the Ukraine crisis and calls from the United States and other consumers for more supply.
Dipo Olowookere