Shanghai COVID quarantines enter the fourth week, demand concerns rise, oil drops 4%
Oil fell nearly 4% on Monday to a two-week low amid growing concerns over the global energy demand outlook and prolonged COVID-19 lockdowns in Shanghai and possible increases in US interest rates.
The expectation of slower economic growth this year with the Ukraine war, the threat of COVID-19 in China, the world's largest oil importer, and increases in US interest rates have led to a downward revision of oil demand forecasts.
Brent futures fell $4.33, or 4.1%, to $102.32 a barrel, while West Texas Intermediate (WTI) crude fell $3.53, or 3.5%, to $98.54.
Both indicators closed at their lowest level since April 11, after losing nearly 5% last week. After rising to their highest level since 2008 at the beginning of March, prices fell by about 25%.
This pullback prompted US speculators to cut their net long futures and options positions to the lowest level since April 2020 last week.
The US dollar hit a two-year high with a possible interest rate hike and is suppressing oil. Open interest in WTI futures on the New York Mercantile Exchange last week to its lowest since July 2016, while daily futures volume dropped to its lowest so far this year.
Oil gained support from tight supplies earlier in the year after Russian oil was avoided due to Western sanctions. The EU is preparing "smart sanctions" against Russian oil imports. The market could tighten further if the European Union (EU) bans Russian crude oil.
Although the EU Commission is working on the sixth package of sanctions against Russia, an embargo on oil exports from Russia seems unlikely for now.
Russia's Rosneft was unable to sell oil in a jumbo auction where it requested ruble upfront payment, meaning the country's largest oil company should find ways to route more crude to Asian buyers through private deals.
In the US, officials said that domestic oil and gas production has increased and will continue to increase to compensate for the 1 to 1.5 million barrels per day withdrawn from the market.
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