Crude Slumps 2% on China Covid Situation as EU Dawdles on Russian Oil Ban

By Barani Krishnan — Crude prices tumbled 2% Tuesday while staying above the key $100 per barrel support as market participants fretted again about China’s ability to keep its economy on track and retain the massive oil imports that have made it the largest consumer of the commodity, overtaking the United States.

Beijing, facing dozens of new Covid cases daily, is mass-testing residents to avert a lockdown similar to Shanghai’s over the past month, Reuters reported, adding that the capital’s restaurants were closed for dining in, and some apartment blocks were sealed shut.

The renewed concerns over China came as the European Union remained undecided on instituting a ban on Russian oil in response to Moscow’s more than two-month old invasion of Ukraine. An EU embargo on Russian oil would likely push crude prices to retest the highs seen right after the invasion, when a barrel went to almost $140.

crude, the London-traded global benchmark for oil, was down $2.42, or 2.2%, to $105.16 a barrel by 2:21 pm (18:21 GMT). It fell to as low as $104.66 earlier in the session.

New York-traded , or WTI, the benchmark for U.S. crude, was down $2.59, or 2.5%, to $102.58, after plumbing a session low of $102.12.

The slump in crude prices occurred despite the trade’s expectations that U.S. inventories of crude to fuel fell last week — an event that typically would have sent prices higher.

“Crude prices are declining as Beijing tightens up their Covid controls and as tanker-tracker data showed Russian crude flows increased,” said Ed Moya, analyst at online trading platform OANDA. “Energy traders are not convinced that the EU will be able to move forward with an embargo on Russian oil.”

China worries aside, traders are awaiting the Federal Reserve’s on Wednesday, where the central bank is likely to impose a 50-basis, or half-percentage, point rate hike — its most in over 20 years — as it aims to quell the worst U.S. inflation in four decades.

Oil’s downside, however, appeared limited by Thursday’s impending meeting of the OPEC+, the global oil exporters’ alliance, which is determined to keep a barrel at or above $100.

OPEC+ had pushed up crude prices at each of its meetings over the past year by offering a meager hike of 400,000 barrels per day in monthly production to a supply-starved market rebounding from the Covid 2020 disruptions — and then not even fulfilling that.

“OPEC+ seems poised to rubber stamp next month’s output increase target that they probably won’t hit,” Moya said.

Ahead of the Fed on Wednesday and OPEC+ on Thursday, there is the first the U.S. weekly oil inventory data, due after Tuesday’s market settlement from the API, or the American Petroleum Institute.

The API will release at approximately 4:30 PM ET (20:30 GMT) a snapshot of closing balances on U.S. crude, gasoline and distillates for the week ended April 29. The numbers serve as a precursor to official inventory data on the same due from the U.S. Energy Information Administration on Wednesday.

For last week, analysts tracked by expect the EIA to report a decline of 1.17 million barrels, versus the 692,000-barrel rise reported last week.

On the front, the consensus is for a draw of 250,000 barrels over the 1.57-million barrel decline in the previous week.

With , the expectation is for a drop of 1.17 million barrels versus the prior week’s deficit of 1.45 million.

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