Oil Prices Fall As Shanghai Starts Fresh Lockdown

The global oil prices have dipped due to China’s fresh implementation of a city-wide COVID19 lockdown in Shanghai – an important financial and manufacturing hub.

The key financial centre has been battling a new wave of infections for nearly a month, although case numbers were not high by some international standards.

The lockdown, which began on Monday, March 28, 2022, is said to be China’s largest since the coronavirus outbreak began more than two years ago.

The Shanghai Composite stock index, reportedly, fell in early trade before regaining most of the losses later.

The futures contract for Brent crude was down by 4% at $115.80 a barrel.

Brent crude, which is the international benchmark for oil prices, lost more than $4.50 a barrel on concerns that the move would mean that demand for oil will fall.

Despite the fall, however, oil remains almost 80% higher than it was a year ago. Thanks to the war in Ukraine, which helped to drive up prices.

According to Stephen Innes, Managing Partner, SPI Asset Management: “Traders were concerned about the effectiveness of China’s zero-tolerance policy.”

Saying that the fall might just be a tip of the iceberg, Innes also said to investors that there were expectations of further supply chain disruptions as well as a fall in demand.

He said: “We might be only dealing with the tip of the iceberg.”

In a discordant voice, Dan Wang, Chief Economist at Hang Seng Bank China, said the Shanghai COVID will not have a major impact on supply chains, since most factories  will still be in operation and workers are either being confined on-site or given priority for testing.

“The suburbs are controlled quite well and quite tightly,” she said. “Supply chain stability is a priority in this round,” she said.

She also added that given the spike in COVID cases, there were expectations of more government stimulus and interest rates could be lowered “quite significantly” in the coming days.

Recall that until now, the Chinese authorities had resisted locking down Shanghai, which boasts of a population of almost 25 million people to avoid destabilising the world’s second largest economy.

The city will be locked down in two stages over nine days while authorities carry out Covid-19 testing.

 

Reportedly, the Shanghai’s public transport has been suspended and firms and factories in the city have been ordered to halt operations or work remotely.