Surging inflation and escalating lockdowns in China hit oil prices

Oil prices have plummeted a further five percent, to their lowest levels in almost two weeks, compounding last week’s heavy declines.

Brent Crude tumbled 4.21 per cent to $102.20 per barrel, while WTI Crude slipped 4.31 per cent to $97.67 – well below the $100 milestone.

Markets have been weighed down by potential increases to US interest rates – which has reduced expectations for global oil demand, and prolonged COVID-19 lockdowns in Shanghai.

The Federal Reserve is expected to hike interest rates by a further 50 basis points to 0.75-1 per cent, with chair Jerome Powell keen to combat spiralling inflation, which has soared to 8.3 per cent – the highest levels since 1979.

Meanwhile, Chinese authorities have erected fences outside residential buildings to contain the spread of Covid-19, with tens of thousands of new cases reported every day.

The blockades have faced public outcry, with reports of food shortages as millions of residents are forced indoors.

In the capital city Beijing, people have begun stockpiling food, amid growing expectations of a similar lockdown after the emergence of 22 cases.

 Fiona Cincotta, financial market analyst at City Index said: “Shanghai shows no signs of letting up its strict zero-COVID policy, instead vowing to step up the enforcement of COVID restrictions, which could hurt oil demand further.  Adding to the downbeat outlook picture is the prospect of higher interest rates slowing economic growth and bringing demand destruction.”

However, she noted that oil prices remain historically elevated amid continued reports the European Union is considering a ban on Russian oil imports.

Markets are already tight with OPEC+ persistently missing pledged output rises while the International Energy Agency (IEA) has warned of 3m barrels of Russian oil per day being cut off from Western markets.

Analysts estimate that OPEC member Libya has suffered a 500,000 barrels per day in the past two weeks, with oilfields and terminals had been shut amid outages.

There has also been no resolution to the impasse between the Kremlin and the EU over demands to pay for Russian energy supplies in Roubles.

Commerzbank analyst Carsten Fritsch said: “Oil prices are unlikely to come under much greater pressure given that Russian oil production is continuing to fall and lower oil prices could make the EU more willing to impose an oil embargo on Russia.

Separately, oil shortages at the Russian-Kazakh CPC pipeline been rectified with supplies returning to their normal levels late last week – having been restricted for nearly 30 days due to damage to an export terminal at the Black Sea.

Approximately 1.2m barrels of Kazakh oil are transported via this pipeline every day..