Global oil prices have fallen as China begins to implement a citywide lockdown in Shanghai, a key financial and manufacturing hub.
Brent crude slipped more than $3 a barrel on fears it would lead to a drop in oil demand.
The Shanghai Composite stock index fell in early trade before recouping most of the losses later in the morning.
The lockdown, which began Monday, is China’s biggest since the coronavirus outbreak began more than two years ago.
So far, Chinese authorities have resisted sealing off the city of nearly 25 million people to avoid destabilizing the world’s second largest economy.
The city will enter a two-phase lockdown over nine days while authorities conduct Covid-19 testing.
The important financial center has been fighting a new wave of infections for almost a month, although the number of cases is not high by international standards.
It comes after lockdowns in China hit tens of millions across the country earlier this month, including throughout Jilin province and the tech hub of Shenzhen.
The futures contract for Brent crude — an international benchmark for oil prices — fell 2.8% to $117.30 in late morning trading.
Traders are concerned about the effectiveness of China’s zero-tolerance policy on Covid, said Stephen Innes, managing partner at SPI Asset Management.
Mr. Innes also said in a note to investors that further supply chain disruptions as well as a drop in demand are expected.
“Maybe we’re just dealing with the tip of the iceberg,” he said.
Meanwhile, the Shanghai Composite stock index opened lower on Monday before rebounding to trade just 0.13% lower by midday.
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Public transport in Shanghai has been shut down and companies and factories in the city have been ordered to shut down operations or work remotely.
The lockdown will come in two phases, beginning Monday with the east side of Shanghai, which includes the city’s financial hub.
The west side of Shanghai is to be closed from Friday.
This phased approach means half of the city can remain open.
Some companies had already suspended operations in Shanghai, which has been battling a new wave of Covid infections for nearly a month.
Last week, Shanghai Disney Resort said it would close until further notice, citing the “current pandemic situation.”
“We will continue to monitor the pandemic situation and will consult with local authorities and notify guests once we have a confirmed date for operations to resume,” it said.
China’s financial capital, home to nearly 25 million people, Shanghai is now a divided city.
All east of the main river are now closed. Another round of mass testing has begun.
By the end of the week, the western half of the city will be closed.
Public transport will be closed and the city cordoned off. Anyone who goes must show a negative test.
It’s all part of an enormous effort to try to halt the spread of a resurgent virus that China’s leaders thought they had banished.
Anyone who tests positive here is hospitalized or in forced quarantine.
As numbers continue to rise, China’s insistence on a zero-Covid strategy will be tested – but also subtly adjusted.
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