• WTI has found a short-lived pullback around 92.60 but may likely extend losses further.
• Lockdown in China and additional oil supply by the US and IEA are underpinning bears in the counter.
• The additional oil supply of 1.3 million bpd will easily offset the cut in Russian oil.

West Texas Intermediate (WTI), futures on NYMEX, is experiencing a short-lived bounce in the early European session after plunging around 3% on Monday. The oil prices are likely to find significant offers soon amid lockdown measures in China to contain the epidemic of Covid-19 and ease supply concerns as the US administration and International Energy Agency (IEA) have resorted to strategic oil stock reserves.

To contain the epidemic of Covid-19 in Shanghai, the Chinese administration has imposed ‘zero tolerance'. The restrictions on the movement of men, materials, and machines have renewed fears of a plunge in aggregate demand. This may dent the demand for oil and slippage in oil demand by the biggest oil importer will imbalance the demand-supply mechanism.

Meanwhile, the additional supply of 1.33 million barrels of oil per day (bpd) for the next six months collectively by the US administration and IEA (60 million barrels by IEA +180 million barrels by the US =240 million barrels for 180 days) will efficiently offset the cut of one million bpd oil supply by Russia. Therefore, a significant fall in the oil demand due to lockdown curbs in China and sufficient additional oil supply may bring a further sell-off in the oil prices.

On the US dollar front, the US dollar index (DXY) is displaying wild moves around the psychological figure of 100.00 ahead of the US inflation. The market participants are bracing for a higher US Consumer Price Index (CPI) print, which will elevate the expectation of a higher interest rate hike by the Federal Reserve (Fed) in May.