Oil prices are falling as a result of the Shanghai shutdown, which is exacerbating fears of reduced demand.

TOKYO, Japan (Reuters) – Oil prices fell more than $5 on Monday as concerns about reduced fuel demand in China rose after Shanghai's financial center implemented a two-stage shutdown to manage a COVID-19 outbreak.

On one hand, the market was buffeted by the conflict between Ukraine and Russia, the world's second-biggest oil producer, and on the other, the development of COVID-related lockdowns in China, the world's largest petroleum importer.

Brent oil futures fell as low as $115.32 a barrel, and were trading at $115.50 at 0731 GMT, down $5.15, or 4.3 percent.

WTI oil futures in the United States touched a low of $108.28 a barrel on Friday, and were down $5.30, or 4.7 percent, at $108.60.

On Friday, both benchmark futures jumped 1.4 percent, marking their first weekly gains in three weeks, with Brent up 11.8 percent and WTI up 8.8 percent.

"The lockout in Shanghai caused a new sell-off from frustrated investors who had hoped for a different outcome," said Kazuhiko Saito, head analyst at Fujitomi Securities.

Shanghai went into a two-stage lockdown on Monday, halting bridges and tunnels and limiting highway traffic in order to curb a surge of local COVID-19 cases.

Saito also said that the optimistic response to the Houthi's missile strike on a Saudi oil distribution site on Friday had run its course.

When the Organization of the Petroleum Exporting Countries (OPEC) and its allies, known as OPEC+, meet on Thursday, he expects the oil market to turn positive, as the organization is "less likely to expand oil supply at a quicker rate than in previous months."

Russian oil exports might be impacted severely by economic sanctions placed on Moscow by the US and its allies in the aftermath of Russia's invasion of Ukraine, according to analysts. According to some estimates, 1 million to 3 million barrels per day (bpd) of Russian oil may never reach the market.
Russia shipped 4.7 million barrels per day of petroleum in 2021, making it the world's second-largest exporter after Saudi Arabia.

OPEC+ has rejected requests from major consuming countries to increase supply. Since August, the company has been increasing production by 400,000 bpd per month to make up for losses made when the COVID-19 outbreak affected demand.

"Oil prices will likely continue over $100 per barrel for a while as global supply tightens as Russian output drops and the United States approaches driving season," said Tetsu Emori, CEO of Emori Fund Management.

Stockpiles in the OECD are at their lowest level since 2014.

According to a source, the US is mulling another release of oil from the Strategic Petroleum Reserve (SPR) to assist alleviate tight supplies. This release might be larger than the 30 million barrels sold earlier this month.

"However, given the existing low inventory levels, there will be a limited release of SPR, which is considered as another market supporter," Emori added.

Drillers in the United States installed oil rigs for the 19th month in a row, but at the weakest rate since 2020, despite government pressure to increase production