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Global oil benchmark drops below $100 a barrel as China COVID lockdowns continue

Oil futures headed lower on Monday, with the global benchmark slipping back below the $100-a-barrel threshold as China’s COVID-19 lockdowns amplified worries over crude demand.

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Oil has seen volatile trade since Russia’s invasion of Ukraine in late February, with WTI briefly trading above $130 a barrel and Brent nearly touching $140 in early March. Based on most actively traded contracts, WTI had closed at $92.10 a barrel on Feb. 23, the eve of the invasion; Brent had settled at $94.05.

Oil has pulled back in recent weeks as the U.S. announced it would release 180 million barrels of crude over the next six months from its strategic reserves, with other members of the International Energy Agency adding a net 60 million barrels of releases.

China’s lockdown of Shanghai, the country’s largest city with more than 25 million people that also serves as its financial hub, has also served to pull crude prices back down, analysts said.

“There is growing concern over the COVID situation in China, with it appearing as though there is no end in sight for the lockdowns that we have been seeing,” said Warren Patterson, head of commodities strategy at ING, in a note.

“Clearly, the increase in cases and strong enforcement of restrictions leaves further downside risk to Chinese oil demand. Weaker domestic demand suggests we should see refiners cutting operating rates,” while there is also the potential for a pickup in refined product exports from China in the short term, Patterson said. “This is a change, given that prior to lockdowns, there were reports that authorities had asked state refiners not to export diesel or gasoline in April due to uncertainty over the Russia-Ukraine war.”

Still, oil prices traded off the session’s lows as the Organization of the Petroleum Exporting Countries told the European Union that current and future sanctions on Russia could create one of the worst ever oil supply shocks, Reuters reported, citing a copy of OPEC Secretary General Mohammad Barkindo’s speech to EU officials. OPEC also reportedly said it would be impossible to replace the lost volumes of oil.

Meanwhile, natural-gas futures extended their rally after ending last week up by nearly 10%. Prices on Thursday had settled at their their highest since December 2008.

“Weather remains the primary driver for higher prices as winter refuses to release its grip on 2022,” said Christin Redmond, commodity analyst at Schneider Electric, in a Monday note.

The National Oceanic and Atmospheric Administration’s short-term forecasts predict colder-than-normal temperatures across nearly the entire U.S. through April 24, and that’s “expected to keep some heating demand online and reduce storage injections over the period,” she said.

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