By Barani Krishnan
Investing.com -- Crude prices tumbled on Monday on China’s unexpected lockdown of its Shanghai financial hub over a Covid scare and extended losses in post-settlement after the Financial Times reported that Russia was no longer demanding Ukraine be ‘denazified’ in ceasefire talks.
Earlier, oil markets pulled back from their lows of the day as Germany announced the possibility of cutting off crucial Russian energy imports by the year-end.
The Financial Times said Moscow and Kyiv will discuss a pause in hostilities at talks in Turkey tomorrow, and draft documents do not contain three of Russia’s initial core demands — “denazification”, “demilitarisation”, and legal protection for Russian language in Ukraine, sources told the FT.
The FT headline was not followed-up by any announcement from the Kremlin and its authenticity could, therefore, not be confirmed. Russia’s invasion of Ukraine itself is predicated, among other things, on the claim that Ukraine both as country and government had Nazi elements in them and Russia had to take action to “denazify” these.
London-traded Brent, the global oil benchmark, settled the official session down $8.17, or 6.8%, at $112.48 per barrel. It fell to as low as $108.53 during the regular session. In post-settlement trade, Brent fell almost $11 to trade at under $107 by 3:45 PM ET (19:45 GMT).
New York-traded U.S. crude benchmark West Texas Intermediate, or WTI, settled down $7.94, or 7%, at $105.96. WTI hit a low of $104.52 during the regular session. In post-settlement trade, the U.S. crude benchmark lost more than $11, trading at under $103.
Oil prices tumbled after No. 2 oil consumer China locked down Shanghai in two stages to carry out testing over an eight-day period, following a new daily record for asymptomatic Omicron infections.
It was the biggest Covid-related disruption to hit Shanghai, and sent prices of copper tumbling as well on fears that any further curbs could hurt demand in China, which is also the world's second-largest economy. As recently as Saturday, Shanghai's authorities denied the city would be locked down as it pursued a more piecemeal "slicing and gridding" approach to try to rein in its Omicron breakout.
Crude prices, however, bounced from their lows after Germany’s Chancellor Olaf Scholz said Europe’s largest economy might proceed this year itself with its cut off from Russian coal and oil, despite its heavy reliance on these.
London-traded Brent settled down $8.17, or 6.8%, at $112.48 per barrel. It had fallen to as low as $108.53 earlier in the session.
Brent rose 11.8% last week for its biggest weekly gain since the start of Russia’s Feb. 24 invasion of Ukraine.
New York-traded West Texas Intermediate, or WTI, settled down $7.94, or 7%, at $105.96. WTI was down to as much as $104.52 earlier in the session. Last week, the U.S. crude benchmark rose 8.8%.
The energy minister of the United Arab Emirates Suhail Mohamed Al-Mazrouei also allayed oil bulls’ concerns that OPEC+ might be tempted to overcompensate the present shortage in crude by raising production beyond its standard monthly increments of 400,000 barrels per day.
Without digging into OPEC+ capacity — and notwithstanding the politics of the moment — Mazroui tried suggesting that perhaps Europe should reconsider ditching Russian energy.
“Russia is an important member (of OPEC+) and leaving the politics aside, this volume is needed today,” Mazroui said in an interview with Asharq Business. “Unless someone is willing to bring 10mn barrels a day to the table we don't see how one can substitute Russia.”
The UAE energy minister also tried to appease some of the dismay of the consuming countries by stating that OPEC+ is “not happy with higher crude prices” — a statement that will be hard to prove given the actions of the group in recent months.
“But we can't oversupply the market,” Mazroui added in a more sensible follow-through remark. “Raising production will only be done in a measured and consensual manner among OPEC+ members.”