Home to over 28 million people, Shanghai will be locked down for eight days
Oil prices fell on Monday as supply fears over ongoing and further Russian oil disruptions were overshadowed by demand concerns after Chinese financial hub Shanghai were put under an 8-day COVID lockdown.
International benchmark Brent crude was trading at $112.91 per barrel at 0724 GMT for a 3.8% decrease after closing the previous session at $117.37 a barrel.
American benchmark West Texas Intermediate (WTI) was at $109.09 per barrel at the same time for a 4.2% loss after the previous session closed at $113.90 a barrel.
After recording a total of 3,500 Covid-19 infections in Shanghai, China’s most populous city with over 28 million population, Chinese health authorities decided to put the city under a two-part lockdown to ensure potential risk for outbreak.
Increasing fears over weak demand in China’s most important financial hub, the lockdown will continue eight days.
“On one hand you have the invasion of Ukraine by Russian forces On the other hand, you have a global pandemic closing down one of the world’s busiest cities,” Matt Stanley, director of the commodity brokerage firm Star Fuels, said in an e-mailed note.
“We will have to see how the lockdown pans out, but one thing is for sure, if high prices don’t destroy demand, then COVID is still very much there bringing the same threat with it,” he said.
Investors are monitoring the upcoming meeting of major oil producers of the OPEC+ group, of which Russia is a member.
While the group has so far ignored the pressures from some countries including the US to ramp up the production, some member countries are struggling at the same time with technical problems, which caused the group to produce far less than its targeted volumes.
Investors are also watching the unfolding sanctions on Russia as its war with Ukraine has now entered its second month.
Fresh sanctions on Russia by the US and EU last week excluded Russian oil and gas exports, however, any retaliatory move from Russian side to affect oil flow to the EU countries is still on the table.
G7 countries, meanwhile, last week called on oil and gas producing countries to act in a responsible manner and increase deliveries to international markets, noting that OPEC producers have a key role to play.