Oil pumping rigs were spotted on July 8, 2021, north of Bakersfield, California, next to the table vineyard.
George Rose | Getty Images
Oil prices fell on Monday, prompting a two-week decline in demand in China due to fears of a lockdown.
International benchmark Brent crude traded down 3.9%, or $ 4.02, at .7 98.72 a barrel. West Texas Intermediate Crude Futures, the US oil benchmark, traded down $ 3.95, or 4%, at $ 94.33 a barrel.
Andy Lipo, president of Lipao Oil Associates, said: “The spread of covid in China is the most bearish item affecting the market.” “If [Covid] Spread across China, leading to a significant number of lockdowns, could have a significant impact on the oil market. “
According to Lipo, China is the world’s largest oil importer and the Shanghai region consumes about 4% of the country’s crude oil.
The potential hit of demand comes because the supply side of the equation is at the front and center because Russia has a role to play as a major oil and gas producer and exporter.
Last week, the International Energy Agency announced that its member states would release 120 million barrels of emergency reserves, including 60 million barrels in an effort to reduce upward prices from the United States.
WTI fell 1% last week while Brent fell 1.5%, with both deals posting their fourth negative week in the last five.
Oil prices have been on a roller-coaster ride since Russia invaded Ukraine. WTI briefly traded at. 130.50 on March 7, the highest level since July 2008. Since then the deal has dropped by about 30%. Brent has already risen to 139 139.13 in March.
Thanks in part to concerns over what could happen to the already tight market if part of the move disrupts Russian supplies. The IEA had previously predicted that Russian oil output was at risk of three million barrels per day.
Traders have blamed non-energy market participants for the wild oscillation of oil by exchanging contracts as a way to hedge against inflation, among other things.
Nevertheless, Wall Street firms quickly pointed out that tapping essential oil reserves would alleviate the price spike in the short term, but did not solve the fundamental problems in the market.
“[S]Some part of the market tightening due to the self-approval of Russian crude buyers – either for fear of future sanctions or for reputational reasons – should be relaxed, “UBS wrote in a statement.
“But it will not fix the structural imbalance in the oil market as a result of less than a few years of investment in the recovery of global demand,” the agency added.