New York (CNN Business) – Oil prices fell sharply Monday as Covid lockdowns in China stoked concerns that the country’s zero-Covid strategy will sap energy demand in the world’s second-largest economy.
US oil dropped 5.6% to a two-week low of $96.33 a barrel Monday morning, while Brent, the world benchmark, fell 4.9% to $101.43 a barrel.
“The overriding sentiment today is bearish due to the China Covid lockdowns,” Andy Lipow, president of consulting firm Lipow Oil, wrote in an email Monday.
Chaoyang, one of the largest districts in China’s capital city Beijing, announced Sunday it will launch mass testing for people who live and work in the district.
In a bid to contain an outbreak described as “urgent and grim,” Beijing authorities have locked down dozens of residential compounds across eight districts, banning residents from leaving their doors or the complex. Residents rushed to stock up on basic goods amid lockdown concerns.
“Rising cases and lockdowns appear set to increasingly crimp demand in one of the leading oil consumers in the world,” said Matt Smith, lead oil analyst, Americas, at analytics company Kpler.
Although the oil market is hurting, the China concerns could create one positive for consumers: They may ease pressure on prices at the pump, which crept higher last week.
The national average for regular gasoline was unchanged on Monday at $4.12 a gallon, according to AAA. That’s up from the recent low of $4.07 a gallon earlier this month.
While the focus now is on demand for oil, traders are on high alert for further disruptions to Russia’s oil supplies that could send prices moving higher again.
For example, now that Emmanuel Macron has secured reelection as president of France, Lipow said officials in Paris are likely to ban purchases of Russian oil “very soon.”