Oil falls on coronavirus shutdown fears in China; Fed rate hike raises demand concerns
Oil fell on Monday as China tightened lockdowns and conducted mass testing to control the COVID-19 outbreak.
The Federal Reserve's signal that it might raise interest rates quickly has raised concerns that economic growth will be hurt.
Brent crude fell 4.76% to $101.10 a barrel, while West Texas Intermediate crude futures fell 4.78% to $97.18 a barrel.
Oil fell for a second day on Monday as China's efforts to contain the COVID-19 outbreak and the Federal Reserve's indication that it might raise interest rates aggressively raised demand concerns.
Brent crude fell 4.76% to $101.10 a barrel, and West Texas Intermediate crude fell 4.78% to $97.18 a barrel, down for a second day.
China has implemented stricter measures to contain the country's rising coronavirus cases, which has raised fears of a significant blow to demand in the world's largest energy importer. Shanghai authorities erected fences near some apartment buildings. They closed some streets amid a strict lockdown in the financial center, fearing that the capital, Beijing, would be locked after mass testing.
Chinese officials have stood by what they call a "dynamic" "no-coronavirus" policy. That means rapid lockdowns, mass testing, and travel restrictions whenever gatherings emerge, with Shanghai in lockdown since March.
Many Fed officials, including President Jerome Powell, indicated last week that the central bank is likely to raise American interest rates by half a percentage point next month to control inflation, which is moving at its highest levels in more than 40 years. Investors largely expect the Fed to raise interest rates by 50 basis points in the next three policy meetings, and there is a growing risk that this could hurt economic growth.
"There is no doubt that concerns about lower demand in China are hurting trader sentiment and an expected slowdown in the United States," said Susanna Streeter, senior investment and markets analyst at Hargreaves Lansdown. "However, the price is set to remain volatile as the ongoing brutal battles in Ukraine add to the tide of anxiety in the spring."
The oil market already faced a reduction in supply after the Russian war on Ukraine. Heavy sanctions were imposed on Russia in the wake of the invasion, as traders avoided Russian shipments. The European Union contemplated Russia cutting energy, having already been banned by the United States.
The Times reported that the European Union plans to impose "smart sanctions" on Russian oil imports to reduce damage to the bloc's economy. The EU is highly dependent on Russia for its energy needs, with about 25% of its oil and 40% of its natural gas imports coming from there, and it is under pressure to find alternative sources.
"Russia's commitment to a war in the country's east remains firm. There are still some expectations that European countries that are still resilient against the Russian crude embargo may back down in the face of Moscow's continued aggression," Streeter said.
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