Oil prices fell more than $2 a barrel on Monday after global consumers announced plans to release a record volume of crude oil and petroleum products from strategic stocks, while blockades in China continued.
The situation in China applies a zero-tolerance policy to the rising Covid-19, particularly in Shanghai, causing a fall in the oil sector. China is the world’s largest importer of oil. This anxiety about China’s growth is the main reason for the fall in oil prices: Shanghai shows no sign of lifting restrictions while Guangzhou is carrying out mass virus tests.
“Fears are now growing that if China’s Omicron wave spreads to other cities, its zero-COVID policy will see prolonged mass shutdowns that will have a negative impact on both industrial production and domestic consumption,” said Jeffrey Halley, senior market analyst at OANDA.
Member countries of the International Energy Agency (IEA) will release 60 million barrels over the next six months, with the US matching that amount as part of its 180 million barrel release announced in March. The moves are intended to make up for a shortfall in Russian crude after Moscow was hit with heavy sanctions following its invasion of Ukraine.
“We expect these strategic petroleum reserve (SPR) volumes – around 273 million barrels in total and 1.3 million barrels per day (mbd) over the next six months – to go a long way in the short term to offsetting the 1 mbd of Russian oil. we expect supply to remain permanently offline,” JP Morgan analysts said.
However, it is unclear whether this will fully compensate for the lack of Russian oil as exports continue, notably via India. US President Joe Biden will meet virtually with Indian Prime Minister Narendra Modi today, at a time when the US has made it clear it does not want to see an increase in Russian energy imports through India.
In the US, energy companies last week added oil and gas rigs for the third week in a row as Washington seeks to increase production to help its allies wean themselves off Russian oil and gas.
Meanwhile, Brent crude was down $2.05 this morning to $100.73 a barrel. This is a continuation of the fall that began last week, when Brent fell by 1.5%.
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