Brent crude oil (BZ=F) took a back foot on Monday amid concerns that China’s COVID lockdowns will dampen demand and economic growth.
The oil benchmark fell to $102.17 per barrel on the day, a fall of 4.2% and its lowest level in two weeks while West Texas Intermediate was trading close to support at $98 a barrel.
The prospect of a faster Federal Reserve tightening path this year, as central bankers aim to cool runaway inflation, as well as a potential ban of Russian oil by the European Union, also had an effect on prices.
It comes as coronavirus cases have risen in China, with authorities in Beijing starting a mass testing push after a recent sharp spike.
Around 3.5 million residents and workers in Chaoyang, Beijing's biggest district, must now report for three coronavirus tests this week.
Several residential buildings were also put under lockdown in Chaoyang, an affluent area home to embassies and international businesses.
Fears of a city-wide lockdown have sent people racing to supermarkets to stockpile food and essential items.
“The renminbi has come under further pressure overnight after news that a Beijing district has to undergo three days of COVID testing starting today, plus Shanghai entering a fourth week of lockdown,” Alvin Tan, analyst at RBC Capital Markets, said. “Crude oil, iron ore, and Chinese equities have all slumped.”
China’s benchmark stock index, the CSI 300 index, closed down 4.9% on Monday, its biggest one-day drop since February 2020.
The most-traded September iron ore contract on the Dalian Commodity Exchange fell as much as 11% on Monday, while iron ore futures in Singapore also declined by as much as 11% in response.
Elsewhere, the most actively traded October steel rebar futures contract on the Shanghai Futures Exchange fell 3.2%.
“China is the world’s second-largest economy and has shown no signs it intends to live with the virus,” Jeffrey Halley of OANDA said.
“It would be a brave man that bets on president Xi Jinping backtracking on anything he says he is going to do, or on the government in general. With that in mind, the likely pressure valve is going to be disruption to China’s export machine, and a cratering of consumer confidence.”
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