Oil Futures Tumble 3% as Protests in China Rattle Markets

Liubov Georges
By  Liubov Georges , DTN Energy Reporter

WASHINGTON (DTN) -- Brent crude futures traded on the Intercontinental Exchange fell to its lowest price point since early January and West Texas Intermediate on the New York Mercantile Exchange to a 2022 low early Monday after widespread protests against COVID restrictions in China, sparked by a deadly fire in the lockdown-hit city of Urumqi, spread to the country's largest metropolitan areas, elevating the risk of social unrest in the world's second largest economy.

Thousands of protestors gathered on the streets of Shanghai, Beijing, and Wuhan -- the original epicenter of the COVID-19 outbreak -- to voice their opposition to the government's harsh COVID policies that can confine people to their apartment blocks for weeks if not months despite risks to public safety, health, and their welfare.

They called for an immediate easing of COVID controls and the end of the lockdown in Urumqi, the capital city of the western province of Xinjiang, where quarantine measures hindered rescue efforts in a burning high-rise apartment block. At least 10 people were reported to have died in the Urumqi fire, but authorities denied claims that residents couldn't evacuate because of COVID measures.

As of Monday morning, protests spread to at least 16 cities nationwide, including some of the nation's largest manufacturing hubs and metropolitan areas. Some also shouted for President Xi Jinping to "step down" and sang a socialist anthem used during 1989 pro-democracy protests in Tiananmen Square in Beijing. So far, the government's response has been restrained, but pockets of violence were reported in some of the largest protests in Shanghai and Wuhan. The situation remains fluid.

Goldman Sachs this morning said protests in China could trigger an earlier exit from COVID-19 lockdowns, but chances are growing for a messy exit as infections spread and residents protest virus controls.

"The central government may soon need to choose between more lockdowns and more COVID outbreaks," Hui Shan, Goldman's chief China economist, wrote in a note to investors.

Local governments have struggled in recent weeks to "balance quickly" controlling the spread of the virus while obeying recent measures mandating a more targeted approach. Amid the disruptions to economic activity caused by COVID restrictions, analysts estimate at least 1 million barrels per day (bpd) in oil demand from China has been lost.

Against this backdrop, Chinese refiners are reportedly holding back on new oil purchases as fuel demand falls at home, waiting to see how the effect of new COVID policies and now protests will play out in the market. Traders said more than 10 cargos of Russia's ESPO crude due to load in December and bound to Asian customers are left unsold. Around 35 cargos of oil from fields in eastern Siberia normally sail from Russia's far-east Kozmino port to buyers in Asia each month.

Near 7:30 a.m. EST, WTI futures for January delivery dropped $2.32 to $73.94 barrel (bbl), with January Brent futures on ICE falling $2.68 to $80.95 bbl. Next-month delivery February Brent contract expanded its premium against the expiring contract to a $0.27 contango. December RBOB futures on NYMEX declined $0.0171 to $2.3111 gallon, with the January contract trading at a $0.0598 discount at $2.2513 gallon. December ULSD futures fell $0.0333 to $3.2058 gallon and next month contract slid to $3.1373, down $0.0290 in early trading.

The January Brent, December RBOB and ULSD futures contracts expire Wednesday afternoon.

Liubov Georges can be reached at liubov.georges@dtn.com

Liubov Georges