How the Shanghai Lockdown Affects the Oil Price

For a few weeks now, short-term lockdowns have repeatedly weighed on the economy in and around Shanghai. Now, due to the rapidly increasing Corona numbers, the Chinese government imposed a strict lockdown of several days for the metropolis of 26 million people.

Now not only the Chinese economy fears not to reach its growth target, also German companies fear a worsening of the supply chain problems and the international oil market reacted with a price crash at the beginning of the week. Although the oil price has recovered somewhat in the meantime, the lockdown in Shanghai continues to raise fears that oil demand could slump due to the new situation in China, despite the Ukraine war.

Lockdown raises fears of falling oil demand

The global oil market is currently extremely tight. Fear of the consequences of the Ukraine war caused the oil price to reach levels not seen since 2008. However, at the beginning of the week, oil price developments were again determined by other influences for the first time since the outbreak of war. The lockdown in Shanghai, for example, caused oil prices to plummet.

The sharp rise in Corona numbers in the Chinese port city of Shanghai had repeatedly caused short-term lockdowns for weeks, but now the Chinese government imposed extremely strict measures, and right up to the end of the week.

Fears are now circulating in the oil market that global demand could be dampened by the renewed Corona outbreak in China. Thus, oil prices promptly suffered significant losses.

In fact, the first consequences of the oil demand lockdown are already being felt in the market. As a result, gasoline consumption in the city of 26 million people dropped rapidly, and more than 80 percent of all flights from Shanghai were also canceled. However, oil consumption in the port city accounts for only about 4 percent of China’s total oil consumption. It therefore remains to be seen whether the consequences for oil demand are really as lasting as feared.

The newly resumed talks between Ukraine and Russia could also ease tensions

After the sharp decline in oil prices at the start of the week, oil prices were already able to recover a little on Tuesday. The situation on the oil market remains tense, as Russian oil continues to be very difficult to sell. For example, three Russian tankers have been lying in the Mediterranean Sea for almost 10 days, waiting in vain to be unloaded. The lockdown in Shanghai has therefore only been able to ease prices in the short term, at least so far.

Meanwhile, the talks between Ukraine and Russia, which resumed on Tuesday, are still being assessed differently by market observers. While some are hoping for at least a slight easing of the price situation, others continue to view the negotiations as extremely difficult and believe that the oil price could continue to rise.

Russia has signaled some willingness to compromise in advance, but it remains to be seen whether this is again pure tactics or an honest offer.




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