Oil declines as traders weigh China covid measures

(Bloomberg) -- Oil slipped at the start of the month as investors weighed the impacts of China’s measures to contain the coronavirus and moves by Europe to cut its reliance on fuel from Russia.  

West Texas Intermediate futures slid as much as 1.2%, after closing 0.6% lower on Friday. Beijing will close gyms and cinemas over the Labor holiday that lasts through Wednesday, and Shanghai will keep virus measures in place. The lockdowns led to a sharp economic contraction in April, and the drop in demand has caused oil stockpiles to swell in the world’s top importer of the fuel. 

Meanwhile, the European Union is set to propose a ban on Russian imports by the end of the year, with restrictions on shipments introduced gradually until then. While Germany said it could end its dependence on Russia by summer, Hungary signaled it would veto any sanctions on Russian energy. 

“Oil remains supported as the EU appeared to progress on a Russian crude import ban,” said Stephen Innes, managing partner at SPI Asset Management Pte. “But further gains will be limited by weaker oil demand prospects from China due to the continued expansion of lockdowns and mass testing across the region.”

Oil climbed for a fifth month in April, marking the longest monthly winning streak since January 2018. Russia’s invasion of Ukraine has spurred inflation, and led the U.S. and its allies last month to agree on a coordinated release of strategic crude reserves to ease surging energy prices. The war has also sparked a rally in diesel prices in the U.S.  

Crude remains in a bullish backwardated pattern with near-term prices above longer-dated ones, though differentials have narrowed since early March. Brent’s prompt spread -- the gap between its two nearest contracts -- was $1.60 a barrel, down from $3.88 on March 8.

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