Oil prices drop as investors weigh China’s Covid measures and Europe’s move on Russia

As investors weigh the impact of China’s measures to contain the Coronavirus and efforts by Europe to decrease its dependency on Russian fuel, oil fell at the start of the month.

Prices of West Texas Intermediate futures fell as much as 1.2% after declining 0.6% on Friday. In Beijing, gyms and cinemas will be closed through Wednesday, and in Shanghai, virus protection measures will be in place.

Brent Crude was trading at $103 barrel, posting similar losses with WTI at the time of writing.

In the short-run, crude oil price differentials have narrowed since early March, but prices remain bullish backwardated.

As of March 8, the immediate spread – the difference between Brent’s nearest two contracts — was $1.60 a barrel, down from $3.88.

Beijing expanded its COVID-19 mass testing, as rising concerns over economic growth and fuel demand grew, further suggesting an imminent lockdown like that of Shanghai.

  • As a result of the lockdown, the economy contracted sharply in April, and the drop in demand has caused oil stocks to swell in China, the world’s largest oil importer.
  • In the meantime, the European Union is expected to propose a ban on Russian imports before the end of the year, with shipments restricted gradually until then. In contrast, Hungary said it would veto any sanctions on Russian energy. Germany said it could end its reliance on Russia by summer.
  • In April, oil gained for a fifth consecutive month, the longest winning streak since January 2018. Last month, the United States and its allies agreed to release strategic crude reserves in order to ease surging energy prices due to Russia’s invasion of Ukraine. Diesel prices have also risen in the U.S. due to the war.

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