As investors fret about oil demand following Shanghai’s discovery of the first case of the virulent COVID-19 subtype, oil prices fell on Monday morning in Asia. By 12:52 AM ET (04:52 GMT), Brent oil prices had dropped 0.54% to $106.44, while WTI crude oil futures had fallen 0.87% to $103.88. Last week, both contracts had weekly drops as the market feared that more interest rate increases would trigger a recession and reduce oil demand. Since demand fell amid COVID-19’s initial outbreak in March 2020, net long positions in WTI crude futures have dropped to their lowest level. This is despite persistent indicators of tightness, according to experts at ANZ Research.

After Shanghai reported the first case of the extremely contagious BA.5 omicron sub-variant on Sunday, fears about probable lockdowns arose due to an increase in COVID-19 cases on July 10 in China from the previous day. While Russian President Vladimir Putin warned that additional penalties might have “catastrophic” repercussions on the world energy market, the market is still keeping an eye on Western restrictions aimed at capping Russian oil prices.

The Nord Stream 1 pipeline maintenance, which will take place from July 11 to July 21 and is the largest pipeline supplying Russian gas to Germany, is also being closely watched by the market. Markets are concerned that the strike may be prolonged due to the conflict in Ukraine.

SPI Asset Management managing partner Stephen said, “The big problem for markets right now – forget COVID and Biden headlines – it’s going to be whether Nord Stream comes back on again.”

If the pipeline is not restarted on July 22 as planned, there could be a destruction of the gas demand in Europe, which could lead to a slowdown in the economy and a decrease in the oil demand, according to Innes.

“We’ll remain in this cycle of good and terrible in the oil market until we clear that significant risk event,” Innes warned.

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