Oil prices dropped sharply Monday, with the Brent contract falling below $100 a barrel as plans to release a record volume of crude from strategic stocks and prolonged Covid-19 lockdowns in China weighed.
By 8:35 AM ET (1235 GMT), U.S. crude futures traded 4% lower at $94.31 a barrel, while the Brent contract fell 3.7% to $98.97 a barrel.
U.S. Gasoline RBOB Futures were down 3.4% at $3.0255 a gallon.
Both crude benchmarks recorded their second consecutive lower week last week and are continuing to head lower, pressured by the combination of the upcoming oil reserve release by the U.S. and the IEA countries and weakening demand with China, the world’s largest crude importer, extending Covid-related lockdowns.
Last week International Energy Agency member countries agreed to release 60 million barrels of crude from their emergency reserves in an attempt to drive down prices, adding to the 180 million barrel release the U.S. announced in March.
Meanwhile, the European Union is set to hold talks later Monday in Vienna with OPEC representatives in an attempt to get the cartel to increase output more substantially than they have done so far to try and further cool pil prices.
OPEC+, which consists of the Organization of Petroleum Exporting Countries and other producers, including Russia, will raise output by about 432,000 barrels per day in May.
This comes amid reports that the European Commission is drafting proposals for an oil embargo on Russia, to punish Moscow further for its invasion of Ukraine and subsequent behavior there.
The European Union confirmed late last week that it’s banning the imports of Russian coal, but pressure has been mounting on the bloc to go further following a series of allegations of atrocities by Russian troops on Ukrainian civilians.
Adding to the potential increase in supply, the latest data from Baker Hughes, released on Friday, showed that the U.S. oil rig count increased by 13 over the last week to total 546, the largest weekly increase since early February.
“The stronger price environment and pressure from the government to increase output should continue to see the rig count ticking higher,” analysts said, in a note. “However, the pace of growth is more difficult to judge, given the capital discipline that we have seen from the US industry over the last couple of years.”
Turning to demand, China is struggling to stop the highly-infectious Omicron variant with lockdowns in several cities and repeated mass testing. The original eight-day lockdown of Shanghai, the country’s financial hub, shows no immediate signs of ending, with a record 26,000 new Covid cases reported on Sunday.
“There is growing concern over the Covid situation in China, with it appearing as though there is no end in sight for the lockdowns that we have been seeing,” added.
“Clearly, the increase in cases and strong enforcement of restrictions leaves further downside risk to Chinese oil demand.”