Global oil prices have plunged as China begins to execute a city-wide lockdown in Shanghai, a major financial and manufacturing center.
Concerns that the move would lead to a drop in oil demand caused Brent crude to drop more than $4.50 a barrel.
The Shanghai Composite stock index dropped early in the day before recovering most of its losses later in the day.
China’s largest shutdown since the coronavirus pandemic began more than two years ago began on Monday. Brent crude futures, which serve as an international benchmark for oil prices, were down 4% at $115.80 a barrel.
Despite the drop, oil is still about 80% higher than it was a year ago because of the war in Ukraine, which pushed up prices.
Traders were concerned about China’s zero-tolerance approach toward Covid’s effectiveness, according to Stephen Innes, managing partner at SPI Asset Management.
According to the Shanghai-based economist, most factories are operating normally, and workers are either limited on-site or given priority for testing.
As long as banks pass them on, lower interest rates make borrowing money less expensive for businesses and individuals.
To prevent destabilising the world’s second-largest economy, Chinese officials had avoided shutting down the city of nearly 25 million people until now.
While authorities conduct COVID-19 testing, the city will be shut down in two parts over the course of nine days.
Although case numbers are low by worldwide standards, the main financial centre has been fighting a new wave of illnesses for nearly a month.
Shanghai’s public transportation has been suspended, while businesses and manufacturers have been told to shut down or work remotely.
The lockdown will be implemented in two parts, beginning on Monday with the eastern section of Shanghai, which includes the financial district.
Starting on Friday, the western portion of Shanghai will be under lockdown. Because of the gradual approach, half the city will be able to stay open. In Shanghai, which has been fighting a new wave of COVID infections for nearly a month, some firms had already shut down.