Florence Tan

SINGAPORE (Reuters – Oil fell Friday, as China’s COVID-19 locks weighed on crude demand. But supply disruption fears from Western sanctions that have imposed restrictions on crude exports to Russia and impeded products exports from Russia remained a major concern.

Futures fell 4 cents to $107.55 per barrel at 0040 GMT, after having risen 2.1% during the previous session. Later Friday will see the expiration of front-month June contracts. A more active contract for July fell by 30 cents, to $106.96 a barrel.

U.S. West Texas Intermediate crude fell by 49 cents (or 0.5%) to $104.87/barrel after closing 3.3% higher Thursday.

WTI will close higher this week, and WTI could post five consecutive months with gains. WTI’s performance is buoyed in part by increased chances that Germany joins other European Union members to impose an embargo against Russian oil.

Oil prices remain volatile, and Beijing shows no signs of relaxing its lockdown measures despite their impact on the economy and global supply chain.

China’s economic indicators are further in the red, as both partial and full lockdowns have been intensified since March. “We now expect China’s GDP to slow further during Q2,” Yanting Zhou from Wood Mackenzie’s APAC Economics, stated in a note.

“Oil market volatility is set to continue, with the potential for more widespread and prolonged lockdowns into May and beyond, skewing the near-term risks for China’s oil demand – and prices – to the downside.”

Six sources within the producer group said that OPEC+ would likely stick with its current deal on supplies and reach a small increase in June output when it meets May 5.

As a result of sanctions imposed by the West over Moscow’s invasion in Ukraine, Russia’s oil output may drop by up to 17% in 2022. Russia describes it as an “special military operation” for disarming Ukraine.

Russian oil ships are also finding it more difficult to ship their crude to Western customers because of sanctions. Exxon Mobil Corporation (NYSE:) will declare force majeure in Sakhalin-1 operations, and reduce output.