Oil prices tumbled heavily this morning, with waning demand in Asia and weak data in China prompting fears of a global recession and a potential surplus in supplies.
Brent Crude has dipped 1.99 per cent to $110.20 per barrel, while WTI Crude has plummeted 2.27 per cent to $107.30.
Continued pandemic lockdowns in China, with the country pursuing a ‘Zero Covid’ policy, led to slower export growth in the world’s second largest economy last month.
“The broader risk-off sentiment sparked by the recession fears, and China’s lockdowns are the major factors that pressure the oil price,” said CMC Markets analyst Tina Teng.
Crude imports by China, the world’s top oil importer, rose nearly seven per cent in April from a year earlier, although imports for the first four months fell 4.8 per cent year on year.
Commerbank analyst Carstsen Fritsch argued the latest data does not take into account the lockdowns, with more concerning figures still to come.
He explained: “The coronavirus lockdowns in China were not yet reflected in April’s crude oil imports. In fact, they increased to 10.5m barrels per day, having still totalled 10.1m barrels per day in March. It seems that Chinese buyers took advantage of the record-high discounts on Russian oil. Vortexa, a company that specialises in tracking tankers, reports that 20 per cent more tanker loads arrived in China from Russia in April.
Global financial markets have also been further spooked by concerns over Federal Reserve interest rate hikes, and the latest price cuts from Saudi Arabia.
Last weekend, the world’ top exporter lowered crude prices for Asia and Europe from June onwards – which has also weighed down both major benchmarks.
Nevertheless, prices remain historically elevated above the $100 benchmark, which was breached for the first time in eight years only two months ago.
There is also the prospect of markets rallying again, with investors eyeing European Union (RU) talks on a Russian oil embargo that could tighten global supplies.
Last week, the European Commission proposed a phased embargo on Russian oil as part of sixth package of sanctions over the conflict in Ukraine, boosting Brent and WTI prices for the second straight week.
However, multiple members are pushing for opt outs from the bill including Hungary, Slovakia, Czech Republic and Bulgaria.
The proposal requires a unanimous vote among EU members this week.
The EU pledge was followed by a commitment from G7 nations yesterday to ban or phase out Russian oil imports.
Japan, one of the world’s top five crude importers, has revealed it will ban Russian crude imports “in principle”, Prime Minister Fumio Kishida said on Sunday.
Meanwhile the US has also imposed new sanctions against Gazprombank executives and other businesses.