By Rowena Edwards
LONDON -Oil prices tumbled more than $9 on Monday as fears grew over weaker fuel demand in China after financial hub Shanghai’s lockdown to curb a surge in COVID-19 infections.
Brent crude futures slid as low as $111.17 a barrel and were trading down $9.02, or 7.4%, at $111.63 a barrel by 1403 GMT.
U.S. West Texas Intermediate (WTI) crude futures were down $8.88, or 7.8%, at $105.02 after touching a low of $104.75.
Shanghai has entered a two-stage lockdown of 26 million people on Monday in an attempt to curb the spread of COVID-19.
“This is also prompting growing concerns that China’s strict zero-Covid policy will lead to repeated lockdowns in key business centres,” Commerzbank analyst Carsten Fritsch said in a note.
Oil demand in China, the largest crude importer globally, is expected to be 800,000 barrels per day (bpd) softer than usual in April, said Bjarne Schieldrop, chief commodities analyst at SEB bank.
Hopes for reconciliation in peace negotiations between Russia and Ukraine, which could start in Turkey on Tuesday, also weighed on prices.
However, analysts expect more bullish sentiment when the Organization of the Petroleum Exporting Countries (OPEC) and allies, collectively known as OPEC+, meet on Thursday to discuss a planned 432,000 bpd increase to production quotas.
The group, which has so far resisted calls to accelerate production increases to ease tight crude supply, is less likely to raise oil output at a faster pace than in recent months, said Kazuhiko Saito, chief analyst at Fujitomi Securities.
Supply deficits are looming, meanwhile, with April spot volumes of Russian crude expected to struggle to find buyers, analysts said. Russia’s crude flows have been little affected in March as most volumes were contracted before the conflict.
Declining orders for Russian oil will be replaced with contracts from Southeast Asian countries, Russian state news agency TASS cited Kremlin spokesman Dmitry Peskov as saying on Monday.
Countries such as India and China are still buying Russian crude and Indonesian state energy company PT Pertamina has become the latest to announce it is considering buying Russian oil.
However, analysts still expect oil markets to feel the effects of widespread avoidance of Russian oil.
“Expectations are that 2.5 m bl/d of Russian crude and products will be lost in April,” SEB‘s Schieldrop said, adding that diesel shortages will increase demand for Brent crude and light sweet crudes.
Oil should not be withheld from any country because “the world is in dire need” of supplies, UAE energy minister Suhail al-Mazrouei said on Monday.
OECD stockpiles are at their lowest since 2014.
To help to ease tight supply, the United States is considering another release of oil from the Strategic Petroleum Reserve (SPR), but this could be limited given already low inventories.
U.S. drillers added oil rigs for a 19th consecutive month but at the slowest pace since 2020 even though the government urged producers to boost output.