Oil joins tumbling commodities as China COVID spread triggers fresh demand worries

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Oil prices tumbled on Monday, amid fresh worries that spreading COVID cases and more lockdowns in China will hurt demand. That has added to concerns that Federal Reserve tightening could also weaken prospects for the commodity.

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China growth worries added to an overall risk-averse mood across global markets on Monday that washed over commodity prices. Iron ore and steel futures slumped in Asia over fears that Beijing could face hash COVID restrictions, echoing what has been seen in Shanghai, where weeks of lockdowns have affected millions.

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Beijing started to test millions of residents and shutting down business districts and some residential areas amid a spike in COVID cases. That led to long lines at supermarkets amid fears a repeat of restrictions seen in Shanghai, with millions now locked down for weeks.

“It seems that China is the elephant in the room and markets feel that slowing China growth could materially change the supply/demand equation on international markets,” said Jeffrey Halley, senior market analyst at OANDA, in a note to clients.

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Hally said he’s sensing a shift in sentiment for the commodity, even amid tight supplies, because Asian markets ignored a couple of key headlines on Monday.

First, Valdis Dombrovskis, the European Commission’s executive vice president, told The London Timesthat the EU was preparing “smart sanctions” on Russian energy imports, which would include “some form” of an oil embargo.

Given that many European countries are dependent on Russian oil and gas, a ban on those commodities is not supported by all, with Germany and Hungary among those opposed. But Halley said he has “reservations that any European energy sanctions on Russian oil and natural gas can be ignored for long.”

Analyst: Libya oil production outage a ‘convenient coincidence’ that helps Russia: analyst

As well, the market has dismissed heavy damage to a major Libyan oil terminal during recent clashes, Halley said.

“Preliminary assessments indicate that 29 sites, including oil derivatives tanks and several other tanks, have been damaged,” Libya’s state-owned National Oil Corp. said in a statement late Saturday.

Oil prices dropped in step with a rout for US stock markets on Friday, as the market is fretting that the Federal Reserve may not get the balance right, as it seeks to curb inflation with interest rate rises without triggering a recession. US equity futures ES00,
-0.64%

YM00,
-0.64%

NQ00,
-0.49%
pointed to continued losses on Monday.

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Credit: www.marketwatch.com /

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