Oil prices plummet as a result of China’s lockdowns, and reserves are released

Oil prices fell $2 a barrel in early Asian trade on Monday, marking the second consecutive weekly decrease after world consumers revealed intentions to release a record volume of crude and oil products from strategic storage, and as China lockdowns remained in place. Brent crude slid $2.04, or 2%, to $100.74 a barrel at 0139 GMT, while West Texas Intermediate crude in the United States fell $1.94, or 2%, to $96.32. Brent oil fell 1.5 percent last week, while US oil fell 1%.

The benchmarks have been at their highest volatile since June 2020 for many weeks. The market has been keeping a close eye on events in China, where officials have put Shanghai, a metropolis of 26 million people, under “zero tolerance” for COVID-19. China is the world’s largest importer of oil.

The International Energy Agency (IEA) member countries will release 60 million barrels over the next six months, with the US matching that amount as part of its 180 million barrel release announced in March. The actions are intended to compensate for a drop in Russian oil as a result of harsh sanctions imposed on Moscow following its invasion of Ukraine.

“Oil is losing momentum due to the concerted efforts of the United States and the IEA nations to release oil reserves, as well as declining demand amid China extending lockdowns, where both industrial centers, Shenyang and Shanghai, ceased wide production,” CMC Markets analyst Tina Teng said.

The record release of 240 million barrels, equivalent to well over 1 million barrels per day, has helped to chill prices and dramatically decrease backwardation in oil price curves, where prices in the immediate months are greater than those in the future months. However, it is uncertain if this would entirely compensate for the shortage in Russian oil since shipments continued, with India increasing purchases due to low discounts.

President Joe Biden will meet digitally with Indian Prime Minister Narendra Modi on Monday, according to the White House, at a time when the US has made it plain that it does not want India to increase its reliance on Russian energy supplies. Russia’s oil and gas condensate output declined to 10.52 million barrels per day (bpd) from a March average of 11.01 million bpd. The release of oil reserves may dissuade producers, particularly the Organization of Petroleum Exporting Countries (OPEC) and U.S. shale producers, from increasing output even at prices near $100 per barrel, according to ANZ Research analysts in a note.

The OPEC+ group of oil exporting nations, on the other hand, has indicated little willingness to expand its output objectives beyond the 400,000 barrels per day it has been adding monthly as part of restoring supply curbs.

Energy companies in the United States installed oil and natural gas rigs for the third week in a row last week, as Washington seeks more output to assist its allies wean themselves from Russian oil and gas.