Oil Sinks Below $98 as China’s Lockdowns Imperil Demand Outlook

Oil fell at the start of the week on concerns that a spreading Covid-19 outbreak in China will hit consumption even further.

West Texas Intermediate futures slid as much as 5.4% to amid a rout in stocks and other raw materials. Rising coronavirus cases in Beijing sparked jitters about an unprecedented lockdown of the capital, while Shanghai reported record daily deaths over the weekend. The world’s biggest crude importer is heading for the worst oil demand shock since the early days of the pandemic.

China’s travails with Covid-19 add another source of volatility to an oil market that’s been buffeted by Russia’s invasion of Ukraine. The war has fanned inflation, and the European Union is discussing measures to restrict oil imports from Russia.

China has implemented lockdowns in a number of cities as it pursues a Covid Zero strategy. Residents in a Beijing district were told to submit to three days of tests starting Monday in a bid to curb cases. As the risks to consumption escalate, money managers have turned the least bullish on WTI since April 2020, when prices turned negative.

“The big story in oil continues to be China,” said Keshav Lohiya, founder of consultant Oilytics. “The hit to domestic demand will be significant if Beijing follows Shanghai’s route.”

The market is poised for additional supply, adding to bearish signs. Libya is expected to resume output from shuttered fields in the coming days, while the CPC oil terminal on Russia’s Black Sea coast has resumed regular operations after one of two moorings damaged in a storm was repaired.