Oil Prices Drop Below US$ 100/Barrel, This is the Trigger

Jakarta –

World oil prices fell on Monday (11/4/2022) due to the lockdown in China which sparked concerns about the demand for ‘black gold’. Brent crude, the international benchmark, fell below $100.

Brent crude fell 4.2%, or US$4.31, to trade at US$98.47 per barrel. West Texas Intermediate crude futures, the US benchmark, also fell, at US$4.44, or 4.5%, to trade at US$93.82 per barrel.

“The spread of COVID in China is the most bearish item affecting the market,” said Andy Lipow, president at Lipow Oil Associates.

“If (COVID) spreads throughout China resulting in a large number of lockdowns, the impact on the oil market could be enormous.”

China is the world’s largest oil importer, and according to Lipow, the Shanghai region consumes about 4% of China’s crude oil.

The potential for a hit to demand for oil comes as the supply side has come first and foremost given Russia’s role as a major oil and gas producer and exporter.

Last week the International Energy Agency announced that its member countries would release 120 million barrels from emergency reserves, of which 60 million barrels would come from the US. The announcement followed the administration of US President Joe Biden saying it would release 180 million barrels of the Strategic Petroleum Reserve in the near future in an effort to curb rising prices.

Wall Street firms were quick to point out that tapping into emergency oil stockpiles would mitigate any price spikes in the near term, but did not address the underlying problem in the market.

“Some of the market tightness caused by self-sanctioned buyers of Russian crude -whether out of fear of future sanctions or for reputational reasons- will ease,” UBS wrote in reference to the emergency release.

“But it will not correct the structural imbalance of the oil market caused by years of underinvestment at a time when global demand is recovering,” the company added.

(toy/hns)

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