Oil slumps as Shanghai lockdown exacerbates fear of weaker demand

A work-over rig performs maintenance on an oil well in the Permian Basin oil production area near Wink, Texas U.S. August 22, 2018. Picture taken August 22, 2018. (Reuters photo)

SULAIMANI (ESTA) — Oil prices tumbled more than $5 on Monday as fears over weaker fuel demand in China grew after financial hub Shanghai launched a two-stage lockdown to contain a surge in COVID-19 infections.

Brent crude futures slid as low as $115.32 a barrel and were trading down $4.37 at $116.3 at 0753 GMT.

U.S. West Texas Intermediate (WTI) crude futures hit a low of $108.28 a barrel, and were down $4.44 at $109.5.

Both benchmark contracts rose 1.4% on Friday, notching their first weekly gains in three weeks, with Brent surging 11.8% and WTI climbing 8.8%.

“Shanghai’s lockdown prompted a fresh sell-off from disappointed investors as they expected such a lockdown would be avoided,” Reuters quoted Kazuhiko Saito, chief analyst at Fujitomi Securities as saying.

Shanghai launched a two-stage lockdown of the city of 26 million people on Monday, closing bridges and tunnels, and restricting highway traffic to contain surging local COVID-19 cases.

Saito also said the bullish reaction to a missile attack by Yemen’s Houthis on a Saudi oil distribution facility had ran its course on Friday, according to Reuters.

But he expected the oil market to turn bullish when the Organization of the Petroleum Exporting Countries (OPEC) and allies, known as OPEC+, meet on Thursday, as the group was “less likely to raise oil output at a faster pace than in recent months”.

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