Myra P. Saefong and Barbara Kollmeyer, MarketWatch
SAN FRANCISCO
EnergiesNet.com 03 28 2022
Oil prices dropped about 7% on Monday to settle at their lowest level in more than a week, as a worsening COVID outbreak in China threatened to hurt energy demand and hope for progress in peace talks between Russia and Ukraine helped ease some concerns over risks to energy supplies.
Price action
- West Texas Intermediate crude for May delivery CL.1, 0.01% CL00, 0.04% CLK22, 0.04% dropped $7.94, or about 7%, to settle at $105.96 a barrel on the New York Mercantile Exchange. Front-month prices rose 10.5% last week, according to Dow Jones Market Data.
- May Brent crude BRN00, 0.42% BRNK22, 0.41% the global benchmark, sank $8.17, or 6.8%, to end at
$112.48a barrel on ICE Futures Europe after climbing by nearly 12% last week. Brent and WTI futures both logged their highest settlements since March 18. - April natural gas NGJ22, -3.03% lost 1.1% to $5.508 per million British thermal units, ahead of the contract’s expiration at the end of Tuesday’s session.
- April gasoline RBJ22, 1.15% fell 7.2% to $3.219 a gallon, after gaining 7.1% last week.
- April heating oil HOJ22, -0.18% dropped 8.1% to $3.783 a gallon. Prices surged over 14% last week.
Market drivers
China began to lock down the bulk of its financial capital and largest city Shanghai on Monday. The two-phased rollout will be the most extensive since officials confined the entire population of Wuhan — the epicenter of the original outbreak — to their homes in early 2020.
“Global markets seem to be a bit nervous about the effectiveness of China’s zero-tolerance policy toward COVID and the potential for more demand and supply chain disruptions as we might be only dealing with the tip of the iceberg,” said Stephen Innes, managing partner at SPI Asset Management, in a note to clients.
Read: Failed China ‘zero-COVID’ policy tops list of 2022 geopolitical risks: Eurasia Group (Jan. 3)
Traders also remained wary of escalating tensions and violence over Russia’s ongoing war in Ukraine as they eyed peace talks between Russian and Ukraine for potential progress that could ease risks to global energy supplies.
“The oil market is selling off on comments about peace and cease-fire, but the truth is that whether or not peace is achieved, Europe is still addicted to Russian oil and gas,” said Phil Flynn, senior market analyst at The Price Futures Group, in a daily note.
Several European Union countries have resisted pressure to join a U.K. and U.S. embargo on Russian oil due to their heavy reliance on energy supplies from the country.
War in Ukraine: Zelensky accuses West of cowardice in plea for jets, tanks
Another geopolitical hot spot appeared to cool on Monday, as Iranian-backed rebels in Yemen reportedly offered a truce on Saturday. That came after Saudi Arabia and its allies attacked targets in that country in response to a Houthi rebel attack on an oil depot Friday in Jeddah.
Markets also looked ahead to Thursday’s meeting of OPEC and non-OPEC members.
Read: Why OPEC+ is likely to stick to its oil output plan when it meets next week
The market appears to mostly agree that producers will stick to the current plan for gradual output increases.
In a July meeting last year, OPEC+ said that starting May 1, 2022, baseline output for the group would climb to 45.485 million barrels a day from 43.853 million.
Given those baseline changes the current OPEC+ plan would call for May increases of 432,000 barrels per day, Reuters reported on Monday.
Iraq and Russia are unlikely to meet even the prior output quotas so the actual output increase from the baseline adjustments will be less than 20,000 barrels per day, said Manish Raj, chief financial officer at Velandera Energy Partners.
That’s a “drop in the bucket” compared with the loss of oil barrels from Russia and Kazakhstan, he said. Weather-related storm damage recently disrupted oil flow through a key Kazakhstan export terminal, according to news reports.
marketwatch.com 28 03 2022
