Oil drops 4%, below $100 due to China shutdowns, reserve release plan

An oil and gas pump lifter near Granum, Alberta, Canada, May 6, 2020. REUTERS/Todd Korroll/File Photo

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  • IEA members release 240 million barrels over 6 months
  • The US dollar is set to rise for the eighth day at most since May 2020
  • Drafting EU proposals for an oil embargo on Russia
  • China’s oil demand sees decline, Shanghai eases lockdown

NEW YORK (Reuters) – Oil prices fell nearly 4 percent on Monday, with Brent crude falling below $100 a barrel on fears that the COVID-19 pandemic will slash demand in China, as the International Energy Agency plans to do so. The release of record quantities of oil from strategic stocks.

US West Texas Intermediate (WTI) closed at its lowest level since February 25, a day after Russian forces invaded Ukraine, a measure Moscow calls a “special military operation”.

Brent crude futures fell $4.30, or 4.2 percent, to settle at $98.48 a barrel, while West Texas Intermediate crude fell $3.97, or 4.0 percent, to settle at $94.29. It is the lowest closing level for Brent since March 16.

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Analysts at consultancy Eurasia Group said fuel consumption in China, the world’s largest oil importer, has stalled with the COVID-19 lockdown in Shanghai. Shanghai, China’s financial hub, began easing lockdowns in some areas on Monday even though more than 25,000 new COVID-19 infections were reported. Read more

“Even when restrictions are lifted in Shanghai, China’s zero-Covid-19 policies are likely to remain a drag on demand,” the Eurasia Group said, noting that the lockdown in Shanghai likely reduced China’s total oil consumption by as much as 1.3 million. barrels per day.

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To help make up for the shortfall in Russian crude after sanctions were imposed on Moscow, IEA member states, including the United States, will release 240 million barrels of oil over the next six months. Read more

Analysts at JP Morgan said that the release of the volumes of the Strategic Petroleum Reserve equivalent to 1.3 million barrels per day over the next six months, enough to make up for the shortfall of one million barrels per day in Russian oil supplies.

“The (SPR) issuance will be the largest ever, and it has already broken the back of the WTI price curve,” said Robert Yuger, executive director of energy futures at Mizuho, ​​noting that spreads were sliding toward contango.

Contango indicates that there is excess supply in the market. This is the time when the prices of the later months are higher than the prices of the front month.

In contrast, when concerns about supply shortages were high in early March, the West Texas Intermediate curve was in what Yuger called a “ultra-delay” as each month fell at least $1 a barrel from the previous month through November 2023.

And what increases pressure on US dollar crude prices (DXY.) It was on track to consolidate for the eighth consecutive day against a basket of other currencies. A strong dollar makes oil more expensive for holders of other currencies. Read more

In a move that could tighten global oil supplies, the European Commission in the European Union is drafting proposals to ban Russian oil, although there is no agreement yet on banning Russian crude. Read more

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The Organization of the Petroleum Exporting Countries (OPEC) told the European Union that sanctions against Russia could create one of the worst oil supply shocks ever and it would be impossible to replace these volumes. OPEC has indicated that it will not pump more oil. Read more

US President Joe Biden and Indian Prime Minister Narendra Modi held talks on Monday as Washington pushed its Asian ally to support its response to the Russian invasion. Read more

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

Fuel demand in India rose to a three-year high in March, with gasoline sales reaching an all-time high. Read more

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Additional reporting by Bozorgmehr Sharafuddin in London, Florence Tan and Isabel Kwa in Singapore and David Gavin in New York; Editing by David Goodman, Mark Potter, Will Dunham and David Gregorio

Our criteria: Thomson Reuters Trust Principles.

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