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A drilling rig operates in the Permian Basin oil and natural gas production area in Lea County, New Mexico, US. File photo: REUTERS/NICK OXFORD
A drilling rig operates in the Permian Basin oil and natural gas production area in Lea County, New Mexico, US. File photo: REUTERS/NICK OXFORD

London — Oil slumped to about two-week lows on Monday, extending last week’s decline, as concern grew that prolonged Covid-19 lockdowns in Shanghai and potential increases to US interest rates would hurt global economic growth and oil demand.

In Shanghai, authorities have erected fences outside residential buildings, sparking fresh public outcry. In Beijing many have begun stockpiling food, fearing a similar lockdown after the emergence of a few cases.

“It seems that China is the elephant in the room,” said Jeffrey Halley, analyst at brokerage Oanda. “The tightening Covid-19-zero restrictions in Shanghai, and fears Omicron has spread in Beijing, torpedoed sentiment today.”

Brent crude was down $4.63, or 4.3%, at $102.02 a barrel by 9.13am GMT and touched $101.94 earlier in the session, the lowest since April 12. US West Texas Intermediate (WTI) crude fell $4.11, or 4%, to $97.96.

Oil also weakened on the prospect of higher US interest rates, which are boosting the US dollar. A strong dollar makes dollar-priced commodities more expensive for other currency holders and tends to reflect increased risk aversion among investors.

Both oil benchmarks lost nearly 5% last week on demand concerns and Brent has retreated sharply after hitting $139, the highest since 2008, in March.

Oil gained support from tight supply. Russia’s invasion of Ukraine has already reduced supply because of Western sanctions and customers avoiding buying Russian oil, but the market could tighten further with a potential EU ban on Russian crude.

The Times reported on Monday that the bloc was preparing “smart sanctions” against Russian oil imports, citing the European Commission’s executive vice-president, Valdis Dombrovskis.

Outages in Libya are also lending support. The Opec member is losing more than 550,000 barrels per day in production because of unrest, with the Zawiya oil refinery suffering damage after armed clashes. 

Reuters

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