Oil prices moved above $100 per barrel last week, due to the supply shock caused by the drop in imports from Russia resulting from the war in Eastern Europe. However, over the weekend, the oil market experienced a demand shock which pushed down oil prices, because of the imposition by the Chinese government of drastic measures in Shanghai against an increase in COVID-19 cases. On Monday, oil prices dropped to the lowest level in ten days, with the global index Brent falling almost 7 percent, from $117 per barrel to almost $107. Shanghai authorities announced last Sunday the lockdown in two phases of the city of 25 million inhabitants during the next 10 days, to stop the spread of the Omicron variant. Besides being China’s largest metropolis, Shanghai is the main financial, manufacturing and trade center. For instance, the largest producer in China of computer chips is located in Shanghai, as well as automobile manufacturers such as General Motors and Tesla, together with Disney amusement park. Additionally, Shanghai is the hub of a region which includes several cities and two provinces which contribute around 20 percent to the country’s economy. Therefore, the oil price drop recognized the potential of a reduction in demand in China, the largest world importer of oil. To the decrease in the tightness of the oil market, caused by supply disruptions, contributed also the announcement of direct talks between the governments of Russia and Ukraine in Istanbul, Turkey.
