Oil cuts earlier gains as China lockdowns counter Libya blackout

(Bloomberg) – Oil was little changed amid signs that China’s continued coronavirus shutdowns are weighing on the economy, thwarting bullish news that protests are blocking supplies from Libya.

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West Texas Intermediate traded just below $107 a barrel after rising last week to the highest since early March. China reported its biggest drop in consumer spending and its worst unemployment rate since the early months of the pandemic, while Shanghai reported its first deaths from an ongoing virus outbreak.

Supplies are hit as Libya faces further supply disruptions after protests against Prime Minister Abdul Hamid Dbeibah’s government on Monday shut down Sharara, the country’s largest oil field. Earlier, protesters forced two Libyan ports to stop loading as production was halted at El Feel field.

Oil has rallied this year as the war in Ukraine disrupted an already tight market, with some traders avoiding Russian crude. The push prompted the United States and its allies to announce the release of millions of barrels of strategic reserves to ease inflationary pressures. OPEC and its partners have refused to speed up the pace at which they are restoring production shut down during the pandemic.

Russian Deputy Prime Minister Alexander Novak said last week that if more countries ban Russian energy flows, prices could “significantly rise above” historic highs. The US and UK moved to ban crude oil from the country after Moscow invaded Ukraine, and the European Union is pushing for it to follow suit.

“The market is still making up its mind on how much Russian oil could be pushed out of the market,” said Matt Stanley, trader and broker at Star Fuels in Dubai. “That keeps Brent at around $110 a barrel.”

In a weekend phone call, Russian President Vladimir Putin and Saudi Crown Prince Mohammad bin Salman gave a “positive assessment” of their efforts to stabilize the oil market, suggesting that no change in production policy is not likely. The two nations lead the alliance that includes the Organization of the Petroleum Exporting Countries and its partners, known as OPEC+.

Crude markets are in a bearish uptrend marked by near-term prices higher than longer-term ones. Brent’s early spread — the spread between its two closest contracts — was $1.13 a barrel in forward, down from 21 cents a week ago.

Oil’s surge this year is part of a broader rise in energy commodities that has seen prices rise even as the outlook for global economic growth dims. U.S. natural gas prices hit their highest level in more than 13 years on Monday as robust demand tests the ability of drillers to increase supply.

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