Crude oil futures slumped to kick off the trading week, with investors hitting the sell button on renewed lockdowns in China that could impact demand volumes. Energy commodities are in the red across the board, but with the fundamentals still solid, this could be a typical breather.
April West Texas Intermediate (WTI) crude futures plunged $5.80, or 5.09%, to $108.16 per barrel at 12:49 GMT on Monday on the New York Mercantile Exchange. US crude prices fell 2.5% last week, but they are still up more than 43% year-to-date.
Brent, the international benchmark for oil prices, is also deep in the red to start the trading week. May Brent crude futures tumbled $4.99, or 4.25%, to $112.38 a barrel on London’s ICE Futures exchange. Brent is also up more than 40% so far this year.
Crude oil futures are sliding on news that Shanghai has announced fresh lockdown restrictions, initiating widespread fears that this could weigh on demand in global energy markets.
Authorities unveiled a two-stage lockdown in China’s most populous city. The eastern half will be locked down from Monday until Apr. 1, while the western half will be shut down until Apr. 5.
In addition to a drop in oil prices, there are still many concerns that the lockdowns could lead to greater global supply chain snafus.
Meanwhile, the Organization of the Petroleum Exporting Countries (OPEC) and its allies, OPEC+, are scheduled to meet later this week. It is widely expected that the cartel will keep their renewed production plans intact.
Market analysts note that OPEC could not even expand capacity if it wanted to because it does not possess enough infrastructure to grow output beyond what it is doing this year.
Unless the region experiences a vast investment cycle, it is going to be challenging to produce more barrels of crude.
And, of course, Russia is a crucial aspect in talks.
“Russia is a key part of the ‘plus’ portion of OPEC+, so their participation is important,” said Marshall Steeves, S&P Global Commodity Insights, in a note.
The International Energy Agency (IEA) noted in a report earlier this month that if the group announced a plan to increase production, it would take up to eight weeks for barrels to reach consuming markets.
Last week, President Joe Biden announced the roll out of additional sanctions against Russia, which includes new measures against 48 state-owned large enterprises that are a component of the Kremlin’s defense-industrial industry.
In other energy commodities, April natural gas futures declined $0.119, or 2.12%, to $5.492 per million British thermal units (Btu). April gasoline futures slipped $0.1403, or 4.08%, to $3.296 a gallon. April heating oil futures plummeted $0.1696, or 4.52%, to $3.5816 per gallon.