The international benchmark Brent crude fell 4.6% to $101.74 a barrel at 4:34 a.m. ET; the U.S. crude West Texas Intermediate fell 4.9% to $97.07.

The oil price downturn comes after a rise in the number of COVID-19 cases in China’s capital Beijing prompted mass testing, lockdown rumors, and panic buying. In Shanghai, the Shanghai composite stock index saw its worst day since February 2020 after the city reported record daily deaths over the weekend.

In addition to a drop in demand for oil in China—the world’s biggest crude importer—analysts believe the Ukraine war and surging inflation are also destroying the demand for oil.

“The ongoing war in Ukraine, COVID-19 lockdowns in China, and surging commodity prices are going to take a significant bite out of global oil demand this year, with the potential to calm high prices,” Claudio Galimberti, senior vice president of analysis at research company Rystad Energy, wrote in a note.

Rystad Energy estimates oil demand will drop around 1.4 million barrels per day with a rebound unlikely until at least 2023. It projects annual world average of oil demand will hit 99.6 million barrels per day, dropping well below the pre-pandemic high of 100.2 million barrels set in 2019.

And as GDP growth is further weighed down by COVID-19 related lockdowns and geopolitical issues—the International Monetary Fund recently downgraded its 2022 world GDP growth forecast from 4.4% to 3.6%—global oil demand will continue to feel downward pressure.

Supercycle or demand destruction

Falling oil prices have been welcomed by the Western world, which was grappling with rising inflation even before many countries shut off the tap to Russian oil following the country’s invasion of Ukraine.

The U.S., Canada, the U.K., and Australia have banned Russian oil outright, while the EU, which is far more dependent on Russian energy, is planning to roll out its own embargo. Sanctions on Russian exports are sustaining high oil prices, which analysts at Rystad say will lead to a broad economic slowdown, negatively impacting the demand for oil.

Oil has also weakened on the prospect of higher U.S. interest rates. A strong U.S. dollar makes dollar-priced commodities like oil more expensive for other currency holders and increases risk aversion among investors.

But China’s lockdown policy is the greatest threat to rising oil prices, as millions of residents in a Beijing district were told to submit to three days of virus testing starting Monday, stoking fears of another citywide lockdown. “It seems that China is the elephant in the room,” Jeffrey Halley, analyst at brokerage OANDA, told Reuters. “The tightening COVID-zero restrictions in Shanghai, and fears Omicron has spread in Beijing, torpedoed sentiment today,” he said.

“The big story in oil continues to be China,” said Keshav Lohiya, founder of consultant Oilytics, told Bloomberg. “The hit to domestic demand will be significant if Beijing follows Shanghai’s route.”

As risks to consumption escalate, analysts have turned bullish on oil prices. “Shrinking demand is a direct result of the impact of lower economic activity globally,” Galimberti wrote, adding, “Despite continued supply tightness, a demand slump could provide some respite for global prices.”