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Oil drops, Brent crude falls below $100 as China lockdowns spark demand fears

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As seen from Bakersfield (California) on July 8, 2021.

George Rose | Getty Images

Oil prices fell Monday as a result of demand worries and lockdowns in China.

International benchmark Brent crudeTo trade at $98.47/barrel, the price of a barrel fell 4.2% or $4.31 West Texas Intermediate crude futuresThe U.S. crude oil benchmark fell 4.5% or $4.44 to reach $93.82 per barrel.

Andy Lipow, President of Lipow Oil Associates said that “the spread in China of Covid is the most bearish thing affecting market,” “If [Covid]The spread of the virus in China has led to significant lockdowns. It could impact oil markets significantly.

China is the biggest oil importer on the planet, with 4% of crude being consumed by Shanghai, according Lipow.

Due to Russia’s position as an important oil and gas exporter and producer, this could lead to a potential drop in demand.

International Energy Agency last week announced that it would allow 120 million barrels to be taken from their emergency stockpiles. Of these, 60 million barrels were from the U.S. In an attempt to reduce rising prices, the Biden administration had announced it would make available 180 million barrels in the Strategic Petroleum Reserve.

WTI declined 1% while Brent dropped 1.5%. Both contracts posted their fourth negative week over the past five.

Since Russia invaded Ukraine, oil prices have experienced a roller coaster ride. WTI traded briefly at $130.50, the highest price since July 2008. Since then, the contract has dropped nearly 30%. Brent rose to $139.13 by March.

The fear that a Russian disruption would cause market tightening could be a part of this move. The IEA had previously forecast that three million barrels per dayRussian oil output was under threat

Oil’s volatility was also blamed by traders on the non-energy markets who exchange contracts to protect against inflation.

Wall Street firms also pointed out that while tapping into emergency oil stocks will reduce the short-term price rise, it doesn’t solve the fundamental market issues.

“[S]ome of the market tightness caused by the self-sanctioning of Russian crude buyers — either in fear of future sanctions or for reputational reasons — should ease,” UBS wrote in regards to the emergency releases.

The firm stated that it would not correct the structural imbalance in the oil market resulting from decades of underinvestment during a period of rising global demand.

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