Oil prices and stock markets have fallen sharply partly due to fears Beijing could soon join Shanghai in a damaging COVID lockdown amid a spike in omicron cases in the Chinese capital.
The price of Brent crude, the international benchmark, was down by $5 or 4.8% by Monday lunchtime, falling to $101 a barrel.
West Texas Intermediate – US crude – was also down by more than 4% and building on losses of last week.
Stock markets also felt pain as investors focused too on the prospect of a big rise in US interest rates next month to help tackle rampant inflation, sparking jitters over the impact rising rates would have on growth.
A big sell-off in China was followed by sharp falls across Europe, with the FTSE 100 down by 2%.
AdvertisementAnalysts said the bulk of the oil price falls, which could provide some relief at UK fuel pumps and for heating oil users in the coming weeks, were down to expectations of a slump in demand in the world’s second-largest economy.
SPI Asset Management managing director Stephen Innes said in a note: “Oil is re-rating lower due to the China consumption hit while the Federal Reserve is raising interest rates to slow down the US economy.
More from Business“Those are two gusty headwinds suggesting some oil bulls will give way to recession fears and demand devastation.”
Jeffrey Halley, analyst at brokerage OANDA, said: “It seems that China is the elephant in the room.
“The tightening COVID-zero restrictions in Shanghai, and fears Omicron has spread in Beijing, torpedoed sentiment today.”
Millions of people in Shanghai have been forced to stay in their homes under China’s strict zero-COVID policy, as the city battles its biggest outbreak of the virus since the early days of the pandemic.
0:55 COVID in Beijing sparks panic buyingThere are now nerves that Beijing could follow suit the crucial port city into a damaging pandemic lockdown.
On the prospect of a US rate rise on 4 May, US Federal Reserve Chairman Jerome Powell has already indicated that rates could rise by half-a-point next month as inflation hits its highest level since 1981.
Both situations are expected to hit demand for fuel.
At the same time, there are developments that could increase supply – US energy firms are adding more oil and gas rigs, and Reuters news agency reported that the Russia-Kazakh Pipeline Consortium resumed full exports last week after repairs and disruptions.
But Hiroyuki Kikukawa, general manager of research at Nissan Securities, said: “Oil prices are not expected to fall below $90 a barrel due to the prospect of a potential ban by the EU on Russian oil amid a deepening Ukraine crisis.”
The Times reported on Monday that the European Union is preparing “smart sanctions” against Russia oil imports, although Germany – which relies heavily on Russia oil – has previously held out against this idea.