By Barani Krishnan

China’s new Covid fears are reported by Investing.com But they aren’t enough to unnerve the long oil crowd — not yet at least.

Reuters reported that Shanghai and Beijing returned to coronavirus alerts after China’s most important economic hub imposed new restrictions on Thursday and declared another round of mass testing, for many millions of residents.

The cities in question had both recently relaxed restrictions on activities that were meant to discourage the spread of the virus. China, however, had remained steadfastly committed to a “dynamic zero Covid” policy. 

Shanghai residents in particular are anxious about new cases that flare after the city’s two-month lockdown. Three infections were traced to Red Rose, the popular central Shanghai beauty salon that was reopened after the closure of the rest in June 1, according to officials.

Meanwhile, Beijing’s most populous area announced that entertainment venues would be closed. News of the Shutdown in Shanghai’s Minhang District, which is home to over 2 million, also impacted Chinese stock prices, Reuters reported.

However, the news was not bad enough to have a significant impact on oil prices.

The London-traded crude oil benchmark settled at just 52 cents per barrel, 0.4% lower than the international standard. 

On Wednesday, Brent hit  $124.38, its highest since 14-year peaks of above $130 reached on March 9 after the invasion of Ukraine that triggered Western sanctions on Russian oil that upended the global energy market. Global crude oil benchmark has risen 58% this year.

After a record-breaking Wednesday of $123.15 per barrel on Wednesday, U.S. Crude Oil benchmark traded in New York settled at $121.51 per barrel, down 60c or 0.5%. Over 61% has been the U.S. crude benchmark year to date.

“The oil market remains very tight, but the short-term crude demand outlook took a bit of a hit today,” Ed Moya, analyst at online trading platform OANDA, said, citing the roadblock to China’s reopening with potential lockdowns in seven cities, as well as the growing threat of stagflation in the United States. 

Moya said that any weakness in crude oil now would be mitigated by the U.S. summer travel.

“This will be one of the busiest driving seasons ever. The pent-up demand for vacation and travel will be front-loaded and demand for crude will be robust even if gas prices make a move towards $6 a gallon.”

GasBuddy reported Thursday that gasoline’s pump price is now at a national average higher than $5 per gallon. It was the result of an unprecedented rise in fuel prices, which has been occurring amid high inflation of 40 years.

GasBuddy’s quoted prices for gasoline were slightly higher than that of the American Automobile Association, or AAA, which on Thursday was still reporting a national average of $4.97. 

Both the AAA and SMOK services reported pump prices increasing nearly non-stop since June 6. AAA said that they had increased by 25 cents over the past week, almost 60cs over a month, and more than $1.80 compared to a year before.

Since November, crude oil prices have increased every month as the world’s economies rebounded strongly after the coronavirus epidemic in 2020. Since February’s Russia-Ukraine war, as well as subsequent West-imposed sanctions against Russia on its major oil exporter, has severely affected the supply of many energy commodities. This has led to their high prices reaching multi-month- or multiyear highs. 

In the United States, the crisis has taken on an added dimension with the closure and downsizing of several refineries during the pandemic that has led to an even more drastic squeeze on the supply of gasoline and diesel — the main fuel that trucks, buses, trains and vessels run on.

According to industry estimates, more than 1.0 million barrels per day of US oil refining capacity — or about 5% overall — has shut since the COVID-19 outbreak initially decimated demand for oil in 2020. 

Analysts say US refineries in operation now are providing only what they can — or, more accurately, what they desire — without putting additional money into expanding existing capacity or acquiring idled plants that can be reopened to provide measurable relief to consumers. Record profits are one reason for refineries to act in this way. However, these record profits could be lost if they expand. A second reason is the lengthy turnaround time it takes for any new refinery in order to turn a profit.