While China plans to implement lockdowns for fear of an epidemic, concerns about the coronavirus are tolling the oil market. Will it escalate?
Crude oil prices remained lower on Tuesday after significant losses suffered the day before. They are still weighed down by fears of a general lockdown in Beijing, the capital of China, as well as in Shanghai, thus risking a demand reduction for black gold.
The concern also affects industrial metals, of which China is a major consumer. They recorded substantial price drops on the London Metal Exchange (LME) on Monday. As per the below chart, the London Metal Exchange Index, an index that incorporates the prices of aluminum, copper, lead, nickel, tin, and zinc traded on the LME, posted 4,864.9 points on Monday, erasing all its gains from March and April:
Source: TradingEconomics.com
The implementation of China’s zero-COVID policy seems to be heavily affecting Chinese demand for crude, which is already down 1.2 million barrels per day due to the severe health restrictions (strict lockdowns) put in place in Shanghai. According to Bloomberg, Chinese demand for certain types of fuel (gasoline, diesel, and kerosene for aviation) has already fallen by 20% in April 2022 compared to a year earlier.
In addition, the rise of the US dollar represents another factor currently weighing on crude oil prices, since the greenback is at its 25-month high against the euro.
Source: TradingView.com
On the West Texas Intermediate (WTI) benchmark, we have switched to the new calendar month, which is the June maturity contract, CLM2022. On the Brent benchmark, we will look at the BRNM2022.
