Oil Prices Drop as Beijing Threatens COVID-19 Lockdown
Written by
David Nadelle
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Nicholas Morine
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The price of oil (and global stocks) dropped for a second day on April 25 as China’s efforts to contain an outbreak of COVID-19 — and the Federal Reserve’s indication that it could raise interest rates — prompted concerns about economic production and demand.
COVID cases continue to rise in Shanghai, with the city reporting more than 19,000 new cases and 51 deaths on Sunday, per CNN Business. Shanghai is already in lockdown, but the prospect of Beijing following suit has global market investors fearing a huge increase in companies suspending production. Such a move may exacerbate existing shipping issues and put more strain on already struggling global supply chains.
The Shanghai Composite Index dropped 5.1% and closed at a 22-month low. This is the worst performance for the index since the beginning of the coronavirus pandemic in Feb. 2020. Other markets have seen similar losses, including a 3.7% decrease in Hong Kong’s Hang Seng Index, a fall of 1.9% in Japan’s Nikkei and a 1.7% tumble for Korea’s Kospi. European markets were hit hard as well.
In the U.S., the Dow Jones Industrial Average dropped by 305 points on April 25, the lowest it has been in over a month. Brent crude oil slid 4.76% to $101.10 a barrel and WTI crude oil slipped 4.78% to $97.18 a barrel, dropping for a second day.
The index had already dropped about 980 points, or 2.8%, on April 22.
Fed officials, including Federal Reserve Chair Jerome Powell, hinted that the central bank will table and support a significant U.S. rate increase at its next policy meeting in May (in hopes of taming inflation). If so, expect further increases on mortgage rates, leases, and loan interest rates more broadly.
As Beijing begins to mass inoculate its more than 21 million citizens, a population and production lockdown in the capital city would potentially cripple an already weak global supply chain.
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