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Oil dives 4%, below $100 on China lockdowns, reserves release plan

Commodities Apr 11, 2022 03:26PM ET
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© Reuters. FILE PHOTO: An oil & gas pump jack is seen near Granum, Alberta, Canada May 6, 2020. REUTERS/Todd Korol/File Photo

By Scott DiSavino

NEW YORK (Reuters) - Oil prices fell about 4% on Monday, with Brent crude tumbling below $100 a barrel on worries that the COVID-19 pandemic will cut demand in China and as International Energy Agency (IEA) countries plan to release record volumes of oil from strategic stocks.

U.S. West Texas Intermediate (WTI) closed at its lowest since Feb. 25, the day after Russian forces invaded Ukraine, an action Moscow calls a "special military operation."

Brent futures fell $4.30, or 4.2%, to settle at $98.48 a barrel, while WTI crude fell $3.97, or 4.0%, to settle at $94.29. It was the lowest close for Brent since March 16.

Fuel consumption in China, the world's biggest oil importer, has stalled with COVID-19 lockdowns in Shanghai, analysts at the Eurasia Group consultancy said. Shanghai, China's financial center, started easing lockdowns in some areas on Monday despite reporting a record of more than 25,000 new COVID-19 infections.

"Even when the restrictions in Shanghai are lifted, China's zero-Covid policies will likely remain a drag on demand," Eurasia Group said, noting Shanghai lockdowns likely reduced China's overall oil consumption by up to 1.3 million barrels per day (bpd).

To help offset a shortfall in Russian crude after Moscow was hit with sanctions, IEA member nations, including the United States, will release 240 million barrels of oil over the next six months.

The release of Strategic Petroleum Reserve (SPR) volumes equals 1.3 million bpd over the next six months, enough to offset a shortfall of 1 million bpd of Russian oil supply, analysts at JP Morgan said.

"The (SPR) release will be the largest of all time, and has already broken the back of the WTI price curve," said Robert Yawger, executive director of energy futures at Mizuho, noting the spreads were sliding toward contango.

Contango signals an oversupplied market. It is when prices for later-dated months are higher than the front-month.

In contrast, when concerns about supply shortages were high in early March, the WTI curve was in what Yawger called "super-backwardation" with each month at least $1 a barrel below the prior month through November 2023.

Adding pressure to crude prices, the U.S. dollar was on track to strengthen for an eighth straight day against a basket of other currencies. A stronger dollar makes oil more expensive for holders of other currencies.

In a move that could tighten global oil supplies, the European Union's (EU) executive is drafting proposals for an embargo of Russian oil, although there was still no agreement to ban Russian crude.

The Organization of the Petroleum Exporting Countries (OPEC) told the EU that sanctions on Russia could create one of the worst-ever oil supply shocks and it would be impossible to replace those volumes. OPEC signaled it would not pump more oil.

U.S. President Joe Biden and Indian Prime Minister Narendra Modi held talks on Monday as Washington pushed its Asian ally to support its response to Russia's invasion.

India, the world's third-biggest oil importer, has increased purchases of Russian crude in recent months because Moscow has been forced to sell its oil at a steep discount since invading Ukraine.

Fuel demand in India rose to a three-year high in March, with petrol sales hitting an all-time peak.

Oil dives 4%, below $100 on China lockdowns, reserves release plan
 

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Comments (4)
shaikh uzaif
shaikh uzaif Apr 11, 2022 3:09PM ET
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oil sooner 150$ wait n see
Alan Rice
Alan Rice Apr 11, 2022 1:29PM ET
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Free oil for ALL !!
RUPESH SHAH
RUPESH SHAH Apr 10, 2022 7:59PM ET
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if break support of 92.50 it would be in the range of 62 to 65 . something big happening which we don't know
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Cory Larson
Cory Larson Apr 10, 2022 7:59PM ET
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bs. Biden has lost control of oil and gas zero control without actions he's proven he won't take. any correction in crude is very short lived. China lockdowns are 100% oil driven, and spr release is utter folly. prepare for the highest crude oil pricing the world has ever seen
Emil Miclea
Emil Miclea Apr 10, 2022 7:59PM ET
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62-65 ? Dude what the heck are you thinking are you nuts or something
Edward Chong
Edward Chong Apr 10, 2022 7:59PM ET
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Bunyod Qodirov
Bunyod Qodirov Apr 10, 2022 7:59PM ET
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🤣🤣🤣
shaikh uzaif
shaikh uzaif Apr 10, 2022 7:59PM ET
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oil is gonna sooner 150$ and made lifetime high
St Mo
St Mo Apr 10, 2022 7:46PM ET
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$85
 
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