As Shanghai prepares to reopen factories amid a strict COVID-19 lockdown that had driven oil prices lower last week, the IMF has cut its global economic growth forecasts tempering oil prices.
Brent crude was trading $107, down over 5% on Tuesday after the IMF cut its global economic growth forecast by almost 1%, citing Russia’s war on Ukraine and the primary uncertainty.
The IMF has also sounded warning bells over China’s economy, slashing China’s GDP growth estimate for 2022 to 4.4%, down from its 4.8% estimate in January. Citing what it called a “worsening” economic slowdown, the IMF said it expected a longer downturn in China, despite preparations for the reopening of factories in Shanghai, which could lead to a rise in fuel demand.
“In addition, the combination of more transmissible variants and the strict zero-Covid policy could continue to hamper economic activity and increase uncertainty,” the IMF said in its latest World Economic Outlook. “Larger disruptions could impact key commercial activities, including through port lockdowns.”
China’s COVID lockdown due to an Omicron outbreak helped pressure oil prices down last week, with Shanghai factories closed, resulting in lower demand.
China reported its first deaths in Shanghai due to COVID late Monday, announcing three fatalities and hundreds of thousands of infections.
After being shut down or restricted for three weeks, factories in Shanghai, a city of 25 million people, are starting to reopen as of Tuesday, but only producing in what is referred to as a “closed-loop system”, the Guardian reports, with Tesla staff, for instance, reportedly sleeping inside the factory to avoid spreading the Omicron virus.
Last week, the International Energy Agency (IEA) cut its global oil demand forecast, estimating that China consumption would be reduced by 925,000 barrels per day in April due to lockdowns, helping to balance out the global market for the bulk of 2022.
By Charles Kennedy for Oilprice.com
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