Crude oil futures tumbled in mid-morning Asian trade March 28 after the Shanghai government locked down half the city for mass testing as COVID-19 cases there hit a record high.
Brent futures dip
At 11 am Singapore time (0300 GMT), the ICE May Brent futures contract was down $2.79/b (2.31%) from the previous close at $117.86/b, while the NYMEX May light sweet crude contract was $3.02/b (2.65%) lower at $110.88/b.
Half of Shanghai will be locked down for four days starting March 28 for mass testing, with the other half to into lockdown in the subsequent four days, the local government said in a statement.
Residents will not be allowed to leave home and public transport and ride-hailing services will be suspended, the local government said in the statement. Private cars will also be barred from the road unless necessary.
This comes after the city reported a record 3,450 asymptomatic cases and 50 symptomatic cases March 27, the city government said on its official WeChat account. This was up from 2,631 asymptomatic cases and 47 symptomatic cases the previous day.
Market under pressure
“The market has come under pressure with the latest COVID developments in China,” said ING analysts Warren Patterson and Wenyu Yao in a March 28 note. “Authorities have decided to impose a staggered lockdown in order to carry out mass testing. This action yet again highlights that China is not willing to drop its zero-COVID policy and so continues to be a downside risk for the market,” they said.
The move will bring to mind previous lockdowns imposed by Chinese authorities and the resultant hit to oil demand. The front-month ICE Brent crude contract had plunged as low as $116/b in early morning trade March 28, though it later recouped some losses.
Investors this week will also be keeping watch on the OPEC+ group’s next meeting on March 31. Analysts expect the group to stand pat on its gradual monthly production increases despite oil prices hovering at multi-year highs.
“The upcoming OPEC meeting will also be on watch this week, which may likely see a muted response from the group to current geopolitical tensions, as members may stick to its current production schedule of a gradual 400,000 bpd increase in oil supplies,” said IG market strategist Yeap Jun Rong. “If it holds true, it may aid to underpin oil prices and support further upside.”
Dubai crude
Dubai crude swaps and intermonth spreads were higher in mid-morning trade in Asia March 28 from the previous close.
The May Dubai swap was pegged at $105.94/b at 11 am Singapore time, up $1.63/b (1.56%) from the March 25 Asian market close.
The April-May Dubai swap intermonth spread was pegged at $4.67/b at 11 am, up 6 cents/b over the same period, and the May-June intermonth spread pegged at $3.42/b, up 32 cents/b.
The May Brent/Dubai EFS was pegged at $11.92/b, down 11 cents/b.
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Source: Platts
