Oil Tumbles Near Pre-Invasion Lows As China Lockdowns Escalate

It appears China demand anxiety trumps Russia's geopolitical risk premia for now as WTI has tumbled 5% this morning, pressing down towards pre-invasion lows...

WTI trades with a $92 handle, testing those mid-March lows...

But we note mid-term crude prices have been rising since the SPR release headlines...

A hawkish Fed (US demand pressure) and accelerating COVID cases in China (and the subsequent lockdowns spreading) are dominating the push-pull in the energy complex...

 "Fears are rising now that if China's Omicron wave spreads to other cities, its zero-COVID policy will see mass extended lockdowns that negatively impact both industrial output and domestic consumption," said OANDA senior market analyst Jeffrey Halley.

...with global reserve releases piling on top of that bearish narrative.

"The release of strategic government oil reserves should ease some market tightness over the coming months, reducing the need for oil prices to rise to trigger near-term demand destruction," said UBS analyst Giovanni Staunovo.   International Energy Agency (IEA) member nations will release 60 million barrels over the next six months, with the United States matching that as part of its 180 million barrel release announced in March.

Naturally, China's economic activity is slowing down rapidly

The possibility of Iran production hitting the market remains an overhang as Bloomberg reports Iran said the 2015 nuclear deal is alive but lingering in the “emergency room,” with its fate resting on a decision by the U.S. that could lift sanctions on Tehran’s economy and oil exports.

However, of course, global oil supplies remain at their tightest in years and elsewhere in the world, demand is picking up with fuel demand in India, the world's third-biggest oil importer and consumer, rising to a three-year high in March, with petrol sales hitting a record peak. Additionally, on the bullish side of the coin from crude prices, One of Nigeria’s largest oil producers owes $1.7 billion to Shell and seven banks, which if unpaid, could do significant harm to the West African country’s financial system, say the lenders, and reduce production and thus supply for the global system.