Skip to content

CFDs are leveraged products. CFD trading may not be suitable for everyone and can result in losses that exceed your deposits, so please consider our Risk Disclosure Notice and ensure that you fully understand the risks involved. CFDs are leveraged products. CFD trading may not be suitable for everyone and can result in losses that exceed your deposits, so please consider our Risk Disclosure Notice and ensure that you fully understand the risks involved.

Crude oil prices may bounce back after initial China lockdown shock

WTI and Brent crude oil prices dropped more than 8% overnight on Shanghai lockdown; negotiation odds between Ukraine and Russia seen increasing amid military stalemate and prices likely to recover once China lockdowns end.

Source: Bloomberg

WTI and Brent crude oil prices fell more than 8% overnight after Shanghai, a key Chinese financial hub, began a two-stage lockdown on Monday due to surging Covid-19 cases. The city east of the Huangpu River makes up stage one while the area west of the river makes up stage two, expected to begin April 1. The move came as a surprise to markets, given that city officials were denying speculation of a widespread lockdown as late as Saturday. Beijing may have influenced that decision as China attempts to stick to its 'Zero Covid' policy.

Still, oil prices remain higher on the month, propped up by Western sanctions on Russia that have dented global supply. While much of Europe has foregone targeting Russian oil imports, the United States has banned them. That, along with the barring of key banks from the SWIFT global messaging system, has cut off a large share of Russian-sourced oil barrels from the world market. China is reportedly soaking up some of the displaced Russian output at a steep discount of around $20 to $30 per barrel, according to various sources.

While the lockdown in China hit prices, the downside may not last. Negotiations between Ukraine and Russia haven’t found much success, but the odds of a cease-fire have increased in recent weeks amid a military stalemate. However, Western sanctions will likely remain even with a cease-fire or wider agreement, at least for the near-term. A lot of business divestment is also likely permanent. That could force Russia to stop pumping oil at many of its wells in the coming months.

That would risk doing long-term damage to global energy markets, as taking wells offline has lasting damage to their ability to produce oil. Moreover, most of Russia’s oil fields are still using oil Soviet technology, further crippling the country’s ability to restore as much production as possible. If that were to occur, it could dent global supply for good, which could effectively put a long-term tailwind behind oil prices.

Nevertheless, the current pullback may not last once markets start to look past the current situation in China. It is also important to keep in mind that China remains committed to strict Covid containment measures. That leaves the door open for further lockdowns if the virus outbreak spreads to other major cities.

WTI crude oil technical outlook

WTI prices fell below the 110 psychological level but stopped short of the high-profile 100 mark. A small bounce in early Tuesday APAC trading saw prices lift a bit over 1%, but bulls may want to recapture the 110 level before hitting the buy button with confidence. The 20-day Simple Moving Average (SMA) just below that level may offer some resistance. Alternatively, a resumption to the downside would bring the 50-day SMA and trendline support from the December swing low into focus.

WTI crude oil daily chart

WTI CRUDE OIL DAILY CHART Source: TradingView

Follow Thomas Westwater on Twitter @FxWestwater

This information has been prepared by DailyFX, the partner site of IG offering leading forex news and analysis. This information Advice given in this article is general in nature and is not intended to influence any person’s decisions about investing or financial products. ​

The material on this page does not contain a record of IG’s trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently, any person acting on it does so entirely at their own risk.


The information on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG Bank S.A. accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer.

Start trading forex today

Find opportunity on the world’s most-traded – and most-volatile – financial market

  • Trade spreads from just 0.6 points on EUR/USD
  • Analyse with clear, fast charts
  • Speculate wherever you are with our intuitive mobile apps
Find out more

See an FX opportunity?

Try a risk-free trade in your demo account, and see whether you’re onto something.

  • Log in to your demo
  • Take your position
  • See whether your hunch pays off
Log in now

See an FX opportunity?

Don’t miss your chance – upgrade to a live account to take advantage.

  • Get spreads from just 0.6 points on popular pairs
  • Analyse and deal seamlessly on fast, intuitive charts
  • See and react to breaking news in-platform
Log in now

See an FX opportunity?

Don’t miss your chance. Log in to take your position.

Take advantage

Live prices on most popular markets

  • Forex
  • Shares
  • Indices

Prices above are subject to our website terms and agreements. Prices are indicative only. All shares prices are delayed by at least 15 mins.

You might be interested in…

<h3>How much does trading cost?</h3>
<h3>Find out about IG</h3>
<h3>Plan your trading</h3>

Find out what charges your trades could incur with our transparent fee structure.

Discover why so many clients choose us, and what makes us a world-leading provider of CFDs.

Stay on top of upcoming market-moving events with our customisable economic calendar.