Wednesday, May 18, 2022

Oil prices plunge on China lockdowns, stocks diverge

Brent oil futures finished under US$100 a barrel for the first time in nearly three weeks, reflecting worries about the prospects for the world's second largest economy as it confronts the latest Covid-19 surge.

Other News

Oil prices plunged on Tuesday as China, a major energy consumer, placed nearly 30 million people under Covid lockdown, and Hong Kong and Chinese mainland stock markets dove, while Wall Street stocks rallied.

Brent oil futures finished under US$100 a barrel for the first time in nearly three weeks, reflecting worries about the prospects for the world’s second largest economy as it confronts the latest Covid-19 surge.

“We have good news and we have bad news,” said Briefing.com analyst Patrick O’Hare.

“The good news is that oil prices are down sharply… The bad news is that the big drop in oil prices is due to growth concerns which, by extension, don’t bode well for earnings growth prospects,” O’Hare said.

China reported 5,280 new Covid-19 cases on Tuesday, more than double the previous day’s tally, as the highly transmissible Omicron variant spread across a country that has stuck tightly to a zero-Covid strategy.

Rystad Energy analyst Louise Dickson said severe Chinese restrictions could put 500,000 barrels a day of oil at risk.

“China oil demand risk is real,” Dickson said, adding that a strengthening dollar also pressures crude prices since oil is traded in dollars.

The Federal Reserve is expected to take the first step in a series of interest rate increases on Wednesday, which could push the dollar higher.

Rystad cautioned that the drop in oil prices may be “short lived” given the tight state of global crude inventories and ongoing uncertainty surrounding Russian crude.

Among the hardest-hit markets has been Hong Kong, which already was under pressure from China’s regulatory crackdown on technology firms as part of the government’s move to tighten its grip on the economy.

Traders also are worried Chinese companies could face Western sanctions, as the US and its European allies pressure Beijing to pull its lifeline from an isolated Russia following the invasion of Ukraine.

‘Big sigh of relief’

On Wall Street, stocks opened in positive territory and picked up momentum throughout the session as the drop in oil prices proved unwavering.

“The market is breathing a big sigh of relief that commodities prices – mainly food and energy, oil and grains prices – are coming down,” Adam Sarhan of 50 Park Investments, told AFP.

“At the same time, you have bargain hunters showing up,” Sarhan said. “We are oversold and the market is due for a nice rally.”

All three major indices posted solid gains, with the S&P 500 winning 2.1%.

The gains come ahead of Wednesday’s closely-watched Fed meeting, which is expected to raise the benchmark lending rate a quarter point as it moves to contain accelerating inflation.

Follow us on Telegram for the latest updates: https://t.me/malaysianow

Subscribe to our newsletter

To be updated with all the latest news and analyses.

Related Articles