Oil falls due to the release of strategic reserves and the shutdown of China

An oil and gas pump lifter near Granum, Alberta, Canada, May 6, 2020. REUTERS/Todd Korroll/File Photo

LONDON (Reuters) – Oil prices fell more than $2 a barrel on Monday, after a second consecutive weekly decline, due to plans to release record quantities of crude and oil products from strategic stocks and the continued closure due to the Corona virus in China.

Brent crude for June delivery fell $2.08, or 2%, to $100.70 a barrel by 0940 GMT. US West Texas Intermediate crude lost $2.19, or 2.2%, to $96.07.

Bank of America maintained its forecast for Brent crude at an average of $102 a barrel for 2022-2023, but cut its summer price to $120. Swiss investment bank UBS also cut its June Brent crude forecast by $10 to $115 a barrel.

“The release of the government’s strategic oil reserves should ease some market intensity over the coming months, reducing the need for higher oil prices to wreak havoc on demand in the near term,” said Giovanni Stonovo, an analyst at UBS.

International Energy Agency (IEA) member states will release 60 million barrels over the next six months, with the US matching that as part of the release of 180 million barrels announced in March. Read more

The moves are aimed at making up for the shortfall in Russian crude after Moscow came under heavy sanctions over its invasion of Ukraine, which Moscow describes as a “special military operation”.

Analysts from JP Morgan said that the release of the volumes of the strategic petroleum reserve is equivalent to 1.3 million barrels per day over the next six months and is sufficient to compensate for the shortfall of one million barrels per day in Russian oil supplies.

The foreign ministers of Ireland, Lithuania and the Netherlands said on Monday that the European Union executive is preparing proposals for a possible EU oil embargo on Russia, although there is no agreement yet on a Russian crude embargo. Read more

The market is also watching developments in China, where authorities have kept Shanghai, a city of 26 million people, closed under a “zero tolerance” policy on COVID-19. It was announced that Shanghai will start easing the lockdown in some areas from Monday. Read more

“Concerns are now growing that if the Chinese Omicron wave spreads to other cities, its no-COVID policy will see extended mass shutdowns negatively impacting both industrial production and domestic consumption,” said Jeffrey Haley, senior market analyst at OANDA.

UBS analyst Stonovo said oil demand will be affected in China – the world’s largest oil importer – due to movement restrictions due to the pandemic and in Russia due to international sanctions.

Demand for fuel in India, the world’s third-largest importer and consumer of oil, rose to a three-year high in March, with gasoline sales reaching a record peak. Read more

US President Joe Biden will hold a virtual meeting with Indian Prime Minister Narendra Modi on Monday, the White House said, at a time when the United States has made clear it does not want to see a small increase in Russian energy imports from India. Read more

Bozorgmehr Sharafeddin reports from London.

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