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Crude Oil Slumps; China’s COVID Lockdown, Ukraine Peace Talks Weigh


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By Peter Nurse — Oil prices slumped Monday, weighed by fresh COVID-induced lockdowns in China and optimism over diplomatic talks aimed at ending the Russia-Ukraine conflict.

By 8:50 AM ET (1250 GMT), U.S. crude futures traded 3.9% lower at $105.09 a barrel, while the Brent contract fell 3.5% to $108.75. 

U.S. Gasoline RBOB Futures were down 2.5% at $3.2288 a gallon.

Mainland China reported just over 1,800 new local symptomatic COVID-19 cases on Sunday, the highest daily figure in two years and more than triple the caseload of the previous day. 

This prompted the authorities to lock down the southern technology hub of Shenzhen for at least a week, while the northeastern region of Jilin, on the border with North Korea and Russia, also looks to be affected. 

China is the world’s largest crude oil importer and second largest consumer after the United States.

“This will raise concern over the potential hit to demand. But also importantly, it suggests that China is not ready to let go of its zero-covid policy,” said analysts at ING, in a note.

Also weighing on sentiment in the crude markets are fresh hopes of progress in peace talks between Russia and Ukraine, despite signs of conflict escalation over the weekend.  

Negotiations started again Monday after both sides reported rare progress at the weekend. Ukrainian negotiator Mykhailo Podolyak said on Sunday that Russia was beginning to talk “constructively” and he expected some results in a matter of days, while Russian delegate Leonid Slutsky indicated that a draft agreement could be reached soon.

Although crude prices weakened last week and are trading lower again Monday, they have soared since Russia’s Feb. 24 invasion of Ukraine and are up roughly 40% for 2022 to date.

Helping provide some support were developments in Iraq at the weekend, where strikes on U.S. and Israeli-operated sites by Iran and its proxies have dealt a blow to hopes of any swift resumption of talks on lifting sanctions on the Islamic Republic. 

“Iranian nuclear talks have been suspended due to external factors and so dashing hopes of increased oil supply from elsewhere amid Russian disruptions,” ING added.

Finally, Wednesday sees the Federal Reserve meeting to confirm that it will raise interest rates for the first time since 2018. Although this is widely expected, it should still provide support for the U.S. dollar, to the detriment of commodities, like oil, priced in the U.S. currency.

Crude Oil Slumps; China’s COVID Lockdown, Ukraine Peace Talks Weigh

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