Oil plunges more than 2% on China covid-19 fears

Oil prices traded sharply lower, erasing Friday’s bullish reaction, as fears over the risk of limited demand from China underscored worries about low global supply levels.

In particular, after the 2% gains on Friday, the Brent for September delivery today sees its price falling by 2.2% or 2.3 dollars and trades at $104.7 the barrel.

Similarly, the American WTI August moves with losses 2.9% or 2.7 dollars and moves to $101.9 the barrel.

As mentioned above, the course of today’s trading seems to be driven by the news in China, where a case of a new sub-variant of Omicron was detected in Shanghai, while 63 new cases were also recorded.

The new sub-variant, which is believed to be rapidly transmissible, combined with the increase in cases, may lead to a new round of mass testing of city residents, which will limit mobility and hit fuel demand.

“The market is just responding to the news and China has gotten the most attention so far,” confirms Commonwealth Bank commodities analyst Vivek Dar.

In any case, nervousness remains in the oil market, with attention mainly to the intention of Western countries to impose a ceiling of 40 to 60 dollars on Russian crude, while for his part Vladimir Putin warned that further sanctions could have ” disastrous” effects on the global energy market.

According to JP Morgan, the market is moving between concerns about a possible restriction of Russian exports on the one hand and the possibility of a recession on the other.

“Macroeconomic risks are becoming more two-sided. A 3 million bpd cut in Russian exports is a major threat, which if realized would push Brent crude prices to around $190/bbl,” the bank’s analysts said. in her note.

“On the other hand, the impact of significantly lower demand in recessionary scenarios could bring the price of Brent to $90/barrel in the event of a mild recession and to $78/barrel in a more severe scenario,” they add.