LONDON – Oil prices plunged on Tuesday (15) as major crude consumer China placed nearly 30 million people under Covid lockdown and traders tracked the latest developments in Ukraine and Iran nuclear talks.
Hong Kong and Chinese mainland stock markets closed sharply lower while European equities finished in the red.
Wall Street, however, was higher in midday deals.
Crude futures slumped under $100 per barrel just a week after benchmark contract Brent North Sea soared to a 14-year high close to $140 following Russia’s invasion of Ukraine.
The main international contract, Brent North Sea crude, was back above $100 later in the day but still more than 5% lower.
“We have good news and we have bad news,” said Briefing.com analyst Patrick O’Hare.
“The good news is that oil prices are down sharply… The bad news is that the big drop in oil prices is due to growth concerns which, by extension, don’t bode well for earnings growth prospects,” O’Hare said.
Analysts said the oil market reacted to the lockdowns in China as well as hopes of an Iran nuclear deal and easing concerns of a Russian crude supply crunch.
“The talks between Ukraine and Russia aren’t just lifting market sentiment, they’re alleviating some of the worst fears around commodity supply disruptions,” said OANDA senior market analyst Craig Erlam.
“Further compounding the declines are shutdowns across China which could continue to ramp up as case numbers spike,” he said.
OPEC on Tuesday maintained its forecast for 2022 demand growing by 4.2 million barrels per day.
But the cartel of crude producing nations warned that its forecast was “subject to change in the coming weeks, when there is more clarity on the far-reaching impact of the geopolitical turmoil”.
Traders were also buoyed by comments from Russian Foreign Minister Sergei Lavrov, who said Moscow had received guarantees from Washington on its ability to trade with Tehran as part of ongoing talks to salvage the Iran nuclear deal.
While the drop in oil prices could ease inflation concerns, analysts warned that the lockdowns in China could worsen a global supply-chain crisis that has played a major role in driving up prices.
“This double whammy of the ongoing conflict in Ukraine, with the fresh chaos caused by Covid in China is rattling nerves,” said Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown.
Global stock markets have been in a spiral since Russian troops marched into Ukraine, leading international powers to impose crippling sanctions on the country and numerous companies to pull out.
The UK government on Tuesday imposed an additional 35% import tariff on a swathe of Russian goods, including vodka, and banned exports of luxury products.
Among the hardest-hit stock markets in recent days has been Hong Kong, which was already under pressure from China’s regulatory crackdown on technology firms as part of the government’s move to tighten its grip on the economy.
News that US authorities were also looking to crack the whip over Chinese firms listed in New York added to the selling pressure.
Investors are also keeping a close eye on the Fed’s two-day meeting which ends Wednesday, with policymakers expected to hike interest rates to bring decades-high inflation under control.
– Agence France-Presse
