While China plans to implement lockdowns for fear of an epidemic, concerns about the coronavirus are taking a toll on the oil market. Will it escalate?

Crude oil prices remained lower on Tuesday, after significant losses suffered the day before. They are still weighed down by fears of a general lockdown in Beijing, the capital of China, as well as in Shanghai, thus risking a demand reduction for black gold.

The concern also affects industrial metals, of which China is a major consumer. They recorded substantial price drops on the London Metal Exchange (LME) on Monday. As per the below chart, the LMEX, an index that incorporates the prices of aluminium, copper, lead, nickel, tin, and zinc traded on the LME, posted 4,864.9 points on Monday, erasing all its gains from March and April:

London Metal Exchange (LMEX), TradingEconomics.com

The implementation of China’s zero-COVID policy seems to be heavily affecting Chinese demand for crude, which is already down 1.2 million barrels per day due to the severe health restrictions (strict lockdowns) put in place in Shanghai. According to Bloomberg, Chinese demand for certain types of fuel (gasoline, diesel, and kerosene for aviation) has already fallen by 20% in April 2022 compared to a year earlier.

In addition, the rise of the US dollar represents another factor currently weighing on crude oil prices, since the greenback is at its 25-month high against the euro.

Dollar Currency Index (DXY), daily chart TradingView.com

On the West Texas Intermediate (WTI) benchmark, we have switched to the new calendar month, which is the June maturity contract, CLM2022. On the Brent benchmark, we will look at the BRNM2022.

WTI Crude Oil (CLM22) Futures (June contract, daily chart)

Brent (BRNM22) Futures (June contract, daily chart, EOD data)

That’s all folks for today.

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Thank you.
Sebastien Bischeri

Oil & Gas Trading Strategist
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The information above represents analyses and opinions of Sebastien Bischeri, & Sunshine Profits' associates only. As such, it may prove wrong and be subject to change without notice. At the time of writing, we base our opinions and analyses on facts and data sourced from respective essays and their authors. Although formed on top of careful research and reputably accurate sources, Sebastien Bischeri and his associates cannot guarantee the reported data's accuracy and thoroughness. The opinions published above neither recommend nor offer any securities transaction. Mr. Bischeri is not a Registered Securities Advisor. By reading Sebastien Bischeri’s reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Sebastien Bischeri, Sunshine Profits' employees, affiliates as well as their family members may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

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