Oil prices fell on Tuesday as fears of a recession and a worsening Covid-19 outbreak in China fueled fears of a slowdown in demand for the fuel, raising supply concerns.
Brent crude was down 31 cents, or 0.3 percent, at $97.61 a barrel by 0434 GMT, while U.S. West Texas Intermediate (WTI) crude was down 36 cents, or 0.4 percent, at $91.43 a barrel.
Both benchmarks hit their highest levels since August on Monday amid reports that leaders of China, the world’s biggest crude importer, are considering exiting the country’s strict Covid-19 restrictions.
However, over the weekend Chinese health officials reiterated China’s commitment to its strict zero-covid policy. Also, recent data showed that the country’s exports and imports unexpectedly fell in October.
According to official data on Tuesday, there was a sharp increase in the number of Covid cases in Guangzhou and other major Chinese cities. The global manufacturing hub is battling its worst-ever outbreak, testing its ability to survive a Shanghai-style city-wide lockdown.
“I think the rolling lockdowns, not to mention doubling down on zero covid over the weekend, are not only destroying the long oil market, but they are also negatively impacting the reopening narrative for oil prices. But are pushing back,” said Stephen Innes, manager. Partners in SPI Asset Management.
A stronger greenback also weighed on oil prices. Oil is usually priced in US dollars, so a stronger greenback makes the commodity more expensive for holders of other currencies.
CMC Markets analyst Tina Tang said market participants will be watching US CPI data this week for trade cues.
“Due to sticky inflation and rising interest rates in major Western countries, oil futures are still pricing in the possibility of a global economic recession,” Teng said.
“This, along with a slowdown in China’s fuel demand, are the reasons for the pullback in oil futures over the past few months.”
But ANZ Research analysts said near-term fundamentals for oil remained bullish, with supply issues in focus.
ANZ added that the market faces a deadline for European imports of Russian oil before sanctions are imposed.
An EU embargo on Russian oil in response to Russia’s attack on Ukraine is set to begin on December 5, followed by a freeze on imports of oil products in February. Moscow calls its actions in Ukraine “a special operation”.
U.S. crude inventories were expected to rise by about 1.1 million barrels last week, a preliminary Reuters poll showed on Monday.
The poll was conducted Tuesday ahead of reports from the American Petroleum Institute at 4:30 PM ET and the Energy Information Administration at 10:30 AM ET.
