Commodities News

Oil Down, “Losing Steam” Over Release Plans, Ongoing COVID Lockdowns in China

By Gina Lee – Oil was down on Monday morning in Asia, falling $2 a barrel in early trading after a second consecutive weekly decline. Investors continue digesting plans to release a record volume of crude and oil products from strategic stocks and COVID-19 lockdowns in China continue.

Brent oil futures fell 2.15% to $100.57 by 1:34 AM ET (5:34 AM GMT) and WTI futures slid 2.3% to $96. Brent futures slid 1.5% during the previous week while WTI futures fell 1%, and both benchmarks have been at their most volatile since June 2020 for several weeks.

The International Energy Agency (IEA) will release 60 million barrels over the next six months, with the U.S. matching that amount as part of its 180-million-barrel release announced in March 2022. Fuel demand concerns in China, one of the world’s biggest oil importers, also linger as the city of Shanghai remains under lockdown.

“Oil is losing steam due to the joint efforts of the oil reserve release by U.S. and the IEA countries, along with weakening demand amid China extending lockdowns, where both of the manufacturing hubs, Shenyang and Shanghai, halted broad production,” CMC Markets analyst Tina Teng told Reuters.

The release of 240 million barrels has helped cool prices and sharply narrowed backwardation in oil price curves. However, whether it can fully offset the shortfall in Russian supplies remains to be seen. Exports of Russin oil are continuing, despite the sanctions stemming from Russia’s invasion of Ukraine on Feb. 24.

The release could also deter producers, including the Organization of the Petroleum Exporting Countries (OPEC) and U.S. shale producers, from increasing output even with prices around $100 a barrel, ANZ Research analysts said in a note.

However, the OPEC and allies (OPEC+) grouping has not shown any inclination to increase its output targets any more than the 400,000 barrels per day in its current plan. U.S. energy firms also added oil and natural gas rigs in the past week, in a third consecutive week of additions.

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