By Yasin Ebrahim

Investing.com – Oil prices started the week on the back foot Monday, as Covid-19 lockdowns in China dimmed the outlook for demand at a time when IEA member countries and the U.S. are set to release millions of barrels of oil.

New York Mercantile Exchange lost 4.04% and settled at $94.29 a barrel, while London’s Intercontinental Exchange lost 4.2% cents to trade as $98.49 a barrel.

The lockdown in China has hurt travel activity in the world’s second largest economy, putting jet-fuel and broader oil demand in a chokehold. “[I]t is not only in the metropolis of Shanghai that air traffic has been slashed to 10% of its usual level – many long-distance flights have also been cancelled at other places around the country,” Commerzbank said in a note.

The consulting firm FGE forecasts the impact of declining transport demand in a range of 1.2 million to 1.3 million barrels per day in total, with jet fuel demand accounting for half of this figure, {{Commerzbank added.}}

The Shanghai authorities have said that on Monday, they would ease some lockdowns. However, it appears there is some reprieve. Even as China’s financial centre reported an unprecedented record number of Covid cases, the news is timely. 

This demand hit comes as excess supply is anticipated to increase, further putting pressure on oil prices. The International Energy Agency members agreed to allow 60 million barrels of oil per month for the six-month period. This will reduce fears about a shortage.