WTI drops more than $6.0 to mid-$90s amid concerns about lockdowns in China

• Oil prices slumped on Monday amid concerns about demand in China, and amid risk-off flows and the stronger buck.
• WTI dropped over $6.0 to the $95.00s, and is eyeing a test of March/April lows in the $93.00 area.

Oil prices have seen a steep decline on Monday, with front-month WTI futures last trading lower by more than $6.0 (or over 6.0%) in the $95.00s, having dropped under $100 for the first time in nearly two weeks. Oil bears will be eyeing a test of April and March lows in the $93.00 area, a break below which could feasibly open the door to a drop towards the next key area of support in the $88 and $85 areas.

Market commentators attributed negative news about the state of the Covid-19 outbreak in China as driving the moves, given China’s continued strict adherence to a policy of zero-Covid-19. A few Covid-19 cases were reported in Beijing, sparking fears that the city might be plunged into a lockdown like Shanghai has been in over the last few weeks. In Shanghai, reports suggest the lockdown has been toughened in some areas, with residents reportedly fenced into their apartment blocks.

“It seems that China is the elephant in the room… The tightening COVID-zero restrictions in Shanghai, and fears Omicron has spread in Beijing, torpedoed sentiment today,” said one analyst. “Shanghai shows no signs of letting up its strict zero-COVID policy; instead vowing to step up the enforcement of COVID restrictions, which could hurt oil demand further,” said another. China is the world's second-largest consumer of crude oil and, according to a Bloomberg report last week has already seen its daily consumption drop by around 1.2MBPD this month, nearly 10% of the nation’s demand.

Elsewhere, steep losses across global equities and in other major commodity markets amid broad risk-off flows have also contributed to the downturn in crude oil prices, as has the strengthening of the US dollar. The DXY hit new year-to-date highs in the upper 101.00s on Monday. A stronger dollar makes USD-denominated oil more expensive for international buyers, hurting demand.