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Oil prices fell below the $110 per barrel mark early on Monday after China locked down several cities because of a surge in COVID cases and Russia and Ukraine separately signaled progress in talks that continue today.
As of 7:30 a.m. EDT on Monday, WTI Crude was down 5.75% at $103.12 and Brent Crude was falling by 4.92% to $107.13.
After largely remaining on the sidelines of the newsflow over the past month, COVID again returned to make headlines in China, where it originated. China locked down all 17.5 million residents in the business hub Shenzhen and limited bus services to Shanghai after COVID cases spiked over the past few days.
“This will raise concern over the potential hit to demand. But also importantly, it suggests that China is not ready to let go of its zero-covid policy,” ING strategists Warren Patterson and Wenyu Yao said on Monday.
The Russian invasion of Ukraine was the other driving force behind oil’s move lower early on Monday after both sides signaled during the weekend that there could be some progress with talks.
“Russia is already beginning to talk constructively,” Ukraine negotiator Mykhailo Podolyak said in a video online cited by Reuters. “I think that we will achieve some results literally in a matter of days,” Podolyak added.
Leonid Slutsky, a member of the Russian negotiating team, was quoted as saying by Russian media: “According to my personal expectations, this progress may grow in the coming days into a joint position of both delegations, into documents for signing.”
The hope of progress in the talks and the Chinese COVID surge offset bullish developments for oil prices. Iranian nuclear talks have been paused, it became clear on Friday, while Iran launched missiles on Erbil, a city in Iraq’s semi-autonomous Kurdistan region this weekend, appearing to target a U.S. consulate building.
