Oil Falls Over Fresh Covid-19 Outbreak in China
Trading data show that crude oil prices fell nearly 2% early Monday on a darkening COVID-19 outlook in China which has necessitated a fresh lockdown in cities. The development has triggered worries over growth and consumption in the country, OANDA analyst Jeffrey Halley said in a Monday note.
Market data shows that Brent crude declined 17% to $101.07 per barrel amidst a slowdown in demand, while West Texas Intermediate prices are down 1.9% to $96.43 per barrel early Monday.
China appears to be driving the bearish price action as the US and International Energy Agency emergency oil reserve releases and the scheduled production increase from the Organization of the Petroleum Exporting Countries and allied producers have all been priced in, Halley noted.
Oil prices have reached the bottom of expected ranges, but Brent is still set to remain in a $100 to $120 a barrel range and WTI in a $95 to $115 a barrel range, Halley said. READ: Oil Prices Near 7-Year High on Tight Supply
However, a more substantial drop in prices may not come as the world still faces a structural oil deficit for the next six months amid Russian sanctions, even with more widespread lockdowns in China, according to Halley.
Crude Oil Prices Still High Enough
Despite a price slide to start the week, prices still appear high enough to drive investment even as some scepticism has emerged on whether the price-dampening effect of the massive release of strategic reserves will last, Commerzbank said in a Monday note.
This can be seen in an increase in drilling activity in the US, where the oil rig count rose by double figures last week and regained its April 2020 level, the bank said, citing data from Baker Hughes.
Previously, US oil production had been only gradually recovering, but the US Energy Information Administration already revised its prospects significantly upwards in March and is set to present new estimates on Tuesday, Commerzbank noted.
Meanwhile, the surge in COVID-19 cases in China is weighing on prices, with lockdowns that are slowing oil demand seen to persist for longer, according to Commerzbank.
While air traffic in Shanghai has dropped to 10% of its usual level, many long-distance flights have also been cancelled in other parts of China.
Outages in transport demand are estimated at 1.2 to 1.3 million barrels per day in total, with jet fuel demand accounting for half, according to consultant firm FGE. Energy agencies are likely to adjust their demand forecasts downward and push Brent prices below $100 per barrel again, Commerzbank said. #Oil Falls Over Fresh Covid-19 Outbreak in China
