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Oil prices fall below $100 a barrel as China’s Covid-19 outbreak threatens demand

Oil prices dropped on Tuesday, falling below $100 a barrel, as China, the world’s largest oil importer, imposed new lockdowns to combat an outbreak of the coronavirus, moves that could threaten demand.

The swing in oil prices, which approached $130 a barrel last week, reverberated through the stock market: Airlines stocks rallied, and shares of oil producers slid.

Brent crude, the global benchmark, dropped 7.4 percent to $99.91 a barrel, its lowest price since late February. West Texas Intermediate crude, the U.S. benchmark, fell 6.4 percent at $96.44 a barrel.

Over the past week, crude prices have plunged more than 20 percent, reversing much of the surge after Russia’s invasion of Ukraine added turmoil to an already-tight energy market. Tens of millions of residents in Chinese provinces and cities including Beijing, Shanghai and Shenzhen are under lockdown amid an outbreak of the Omicron variant of the coronavirus. Travel has been cut off between cities, production lines have stopped and malls have been closed.

The measures could snarl global supply chains that are still struggling to recover from pandemic disruptions by slowing down key factory and transportation networks. Companies in China, including Foxconn, the Taiwanese electronics firm that assembles Apple iPhones, have suspended operations in the country.

The new measures have hammered the Hang Seng Index in Hong Kong, where many Chinese companies are listed. With a drop of 5.7 percent on Tuesday, the index was down 10 percent so far this week and was at its lowest level since February 2016.

On Wall Street, falling energy costs helped lift share prices on Tuesday. The S&P 500 rose 2.1 percent, with gains led by airlines. American Airlines and United Airlines gained more than 9 percent on Tuesday, while JetBlue rose more than 7 percent. A data analysis released on Tuesday found that ticket sales for domestic flights in February exceeded those for the same month in 2019, a first since the pandemic began. The trend was expected to continue in March, according to early data from Adobe.

Oil producers tumbled. Chevron and Exxon Mobil both fell more than 5 percent, and Valero Energy was down 6.8 percent, making them among the worst performers in the S&P 500.

Gas prices, which have been rising for weeks amid the conflict in Ukraine, also fell slightly on Tuesday. The average price of a gallon of regular gasoline stood at $4.316, down from a high of $4.325 the day before, according to data from AAA.

Wall Street has been battered this year as threats to the global economy have mounted. Inflation is climbing at its fastest pace in 40 years, threatening consumer sentiment, and the sudden rise in oil prices in recent weeks has exacerbated the situation. Tuesday’s rally followed three days of losses that had left the S&P 500 down more than 12 percent for the year.

Rising concerns. Russia’s invasion on Ukraine has had a ripple effect across the globe, adding to the stock market’s woes and spooking investors. The conflict has already caused​​ dizzying spikes in energy prices, and could severely affect various countries and industries.

The cost of energy. Oil prices already were the highest since 2014, and they have continued to rise since the invasion.  Russia is the third-largest producer of oil, so more price increases are inevitable.

Gas supplies. Europe gets nearly 40 percent of its natural gas from Russia, and it is likely to be walloped with higher heating bills. Natural gas reserves are running low, and European leaders worry that Moscow could cut flows in response to the region’s support of Ukraine.

Food prices. Russia is the world’s largest supplier of wheat; together, it and Ukraine account for nearly a quarter of total global exports. Countries like Egypt, which relies heavily on Russian wheat imports, are already looking for alternative suppliers.

Shortages of essential metals. The price of palladium, used in automotive exhaust systems and mobile phones, has been soaring amid fears that Russia, the world’s largest exporter of the metal, could be cut off from global markets. The price of nickel, another key Russian export, has also been rising.

Financial turmoil. Global banks are bracing for the effects of sanctions intended to restrict Russia’s access to foreign capital and limit its ability to process payments in dollars, euros and other currencies crucial for trade. Banks are also on alert for retaliatory cyberattacks by Russia.

Federal Reserve officials began a two-day meeting on Tuesday and are expected to announce on Wednesday that they will raise interest rates by a quarter of a percentage point, as they begin a campaign to cool down the economy.

Investors have also been weighing mixed messages about the conflict between Ukraine and Russia as a fourth round of negotiations between the countries’ officials resumed on Tuesday. Mykhailo Podolyak, a Ukrainian representative, said Russia and Ukraine had discussed a possible cease-fire and the withdrawal of troops from Ukrainian territory.

“There is so much information investors are taking on board,” said Fiona Cincotta, senior financial markets analyst at Ms. Cincotta said investors might be weighing domestic concerns against news from overseas and deeming the United States a safer place to invest right now.

“With Covid spreading in Asia and the geopolitical tensions in Europe, America seems like the best of a bad bunch right now,” she said.

Source: FactSet

By The New York Times