Oil falls below $100 a barrel as China lockdowns threaten demand
Benchmark oil prices fell below $100 a barrel for the first time since March 1 on expectations that lockdowns could ease petroleum demand in China, the world’s largest importer of crude.
Brent crude, the international oil marker, dropped as much as 9 per cent on Tuesday to a low of $97.44 a barrel. West Texas Intermediate, the US crude contract, also declined about 9 per cent to $93.53.
Oil prices were at their highest levels since 2008 earlier this month, as Russia’s isolation from the international community over its invasion of Ukraine began to limit its exports of crude.
But pressure on the oil market has eased slightly as Covid-19 infections in China have risen to the highest levels since the virus first emerged more than two years ago, prompting lockdowns in the country’s major manufacturing hubs.
“The world’s second-biggest economy and largest crude oil importer is facing a tough challenge to contain a fresh wave of outbreak,” said Tamas Varga, analyst at PVM. “Given the Chinese attitude of zero Covid, the recently declared growth target of 5.5 per cent might have to be revised lower again, dealing a blow to the country’s oil demand growth that the IEA estimated to be 500,000 barrels per day in last month’s Oil Market Report.”
Equity markets in China and Hong Kong posted a second day of sharp declines on concerns over the outbreak as well as reports that Beijing had signalled its willingness to provide Russia with military assistance to support its invasion of Ukraine.
Hong Kong’s benchmark Hang Seng index dropped 5.7 per cent, while the Hang Seng China Enterprises index of large and liquid Chinese stocks shed 6.6 per cent. In China, the CSI 300 index of Shanghai and Shenzhen-listed stocks fell 4.6 per cent.
Falling oil prices drove US stocks higher on Tuesday, partly reversing the previous session’s falls, even as traders prepared for the Federal Reserve to raise interest rates on Wednesday. Economists widely expect the central bank to deliver a quarter-point increase — the first interest rate rise since 2018 — as the war in Ukraine threatens to exacerbate US inflation, which is already at its highest level in 40 years.
A report from the Bureau of Labor Statistics on Tuesday showed a 10 per cent annual rise in US producer prices in February, setting the stage for the Fed to lift rates tomorrow.
Wall Street’s benchmark S&P 500 climbed 1.4 per cent in early trade, with every market sector rising except energy. The technology-heavy Nasdaq Composite, which is down 19 per cent year-to-date, added 2 per cent.
Meanwhile, Europe’s regional Stoxx 600 index fell 0.6 per cent. Germany’s Dax lost 0.4 per cent and France’s Cac 40 index dropped 0.7 per cent. In London, the FTSE 100 fell 0.8 per cent.
Russia’s invasion of Ukraine late last month had left Europe “flirting on the edge of recession”, said Peter Oppenheimer, chief global equity strategist at Goldman Sachs, who added that the fighting would stoke inflation and curb growth.
A net 69 per cent of respondents to a Bank of America survey of fund managers carried out in the week to March 10 expected the European economy to weaken over the coming year — the highest share since 2011.
In government debt markets, the yield on the 10-year US Treasury note fell 0.02 percentage points to 2.11 per cent on Tuesday, hovering around its highest level since 2019. The yield on Germany’s 10-year Bund, which serves as a barometer for eurozone borrowing costs, fell 0.02 percentage point to 0.34 per cent.
Additional reporting by Neil Hume in London and Tabby Kinder in Bangkok