Oil futures slumped Monday after China imposed curbs on activity in an effort to squelch a rise in COVID-19 cases.
Also, U.S. President Joe Biden was scheduled to visit Saudi Arabia this week in an effort to reset relations with the oil producer.
Price action
- West Texas Intermediate crude for August delivery CL00, -2.17% CL.1, -2.17% CLQ22, -2.17% fell $2.26, or 2.2%, to $102.53 a barrel on the New York Mercantile Exchange.
- September Brent crude BRN00, -1.62% BRNU22, -1.62%, the global benchmark, lost $1.74, or 1.6%, to trade at $105.28 a barrel on ICE Futures Europe.
- Back on Nymex, August gasoline RBQ22, -0.83% fell 0.7% to $3.4231 a gallon, while August heating oil HOQ22, +2.21% rose 2.1% to $3.7516 a gallon.
- August natural gas NGQ22, +4.36% rose 3.6% to $6.251 per million British thermal units.
Market drivers
Oil fell last week, with the U.S. benchmark sliding into a bear market as fears of a recession took a toll on crude and other commodities. Demand fears were getting the blame Monday for a renewed slide after Beijing over the weekend imposed stringent restrictions across several cities to tackle the emergence of the highly contagious BA. 5 omicron subvariant.
China is the world’s largest oil importer, and COVID-related restrictions have been cited as a factor keeping a lid on otherwise surging crude prices in 2022.
Analysts said tight supplies of crude were likely to provide a floor for crude. Storage at the Nymex delivery hub in Cushing, Oklahoma, remains “in danger of sliding to levels below 20 million (barrels) for the first time since October of 2014,” said Robert Yawger, executive director of energy futures at Mizuho Securities, in a note.
“By definition, it is hard to imagine crude oil falling off the cliff, electing stops, and trading to levels below the 61.8% retracement versus $88.43…there are only 21 million barrels of storage at the country’s largest storage facility,” he wrote.
Meanwhile, Biden, who had previously promised to shun Saudi Arabia over human-rights violations, was due to visit the kingdom this week and was slated to meet with Crown Prince Mohammed bin Salman, the country’s day-to-day leader. The White House in February 2021 cleared the release of an intelligence report that determined that the crown prince had ordered the operation that led to the death of journalist Jamal Khashoggi in 2018.
“Saudi Arabia will likely agree to loosen the oil taps on the back of the Biden visit, but the leadership will still probably strive to find a way to do it within the context of the current OPEC+ agreement that extends through December (despite the current production cut being fully wound down next month),” said Helima Croft, head of global commodity strategy at RBC Capital Markets, in a note.
“One possible avenue would be for the few countries with any remaining spare capacity (ie. Saudi Arabia and U.A.E.) to compensate for the production underperformance of the struggling OPEC states such as Nigeria and Angola,” she wrote.
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