Shanghai lockdown hits oil prices, shutters Tesla Gigafactory 3
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The latest round of lockdowns in China could have a profound impact on world markets as the country continues to pursue a zero-COVID strategy to combat a spiraling outbreak. Shanghai just launched a two-stage lockdown that will close down bridges and tunnels, and restrict highway traffic in China's largest city. Residents will also be barred from leaving their homes, while many production plants will go offline, like Tesla's (TSLA) factory in Shanghai.
Bigger picture: As of 5:00 a.m. on Monday, the city will lock down areas east of the Huangpu River for four days, including the financial district and industrial parks. The lockdown will then move to the other half of the city, in the west, for an additional four days. During that time, the Shanghai Stock Exchange will shift many services online, and extend the time window for listed companies to release statements or earnings.
Besides another round of supply chain disruptions, the latest curbs hammered oil prices overnight, sending a barrel of WTI (CL1:COM) crude down 4% to under $110. Meanwhile, Brent crude futures (CO1:COM) tumbled by the same amount to as low as the $112-level. Both benchmark contracts are coming off their first weekly gain in three weeks, while there are reports that the U.S. could release more oil from the Strategic Petroleum Reserve.
Go deeper: In an attempt to control the outbreak, Chinese authorities recently locked down the tech hub of Shenzhen, which is the most economically strategic city to come under such restrictions since the pandemic began. "The failure of the targeted lockdown model is a big setback, as Shanghai has been the testbed for China to explore alternative models to minimize the social costs," wrote Oversea-Chinese Banking analysts Tommy Xie and Herbert Wong. "This may delay China's plan to ease its dynamic zero-COVID policy."