Oil prices fell as a flare-up in COVID-19 cases in Beijing dampened prospects for a quick increase in China’s fuel demand, while concerns about global inflation and weak economic development weighed on the market.
Brent crude futures were down $1.81, or 1.48 percent, to $120.20 per barrel at 0443 GMT, while West Texas Intermediate crude was down $1.86, or 1.54 percent, to $118.81 per barrel. Earlier in the session, both contracts had lost more than $2.
Prices fell after Chinese officials warned on Sunday of a “ferocious” COVID-19 spread in the capital and announced plans to conduct mass testing in Beijing until Wednesday.
“China remains the significant near-term downside risk, but most view the gradual normalisation of Chinese demand as a powerful positive for oil despite the potential for lockdown noise in the coming weeks as current demand is far from reflecting normal conditions,” Stephen Innes of SPI Asset Management said in a note.
Both global oil benchmarks rose more than 1% last week after data showed robust oil demand in the world’s top consumer, the United States, despite inflation concerns, and on hopes that consumption in second-biggest global consumer China would rebound after lockdown measures were lifted from June 1.
Concerns about further interest rate hikes following red-hot U.S. inflation data released on Friday are also weighing on global financial markets.
The U.S. consumer price index increased a bigger-than-expected 8.6% last month, the largest year-on-year increase since December 1981, official figures showed, dashing hopes that inflation had peaked.
“…Worries over slowing economic growth dampening global consumption in the coming months and persistent COVID curbs in China denting its consumption in the short term are dominating market sentiment,” Vandana Hari, founder of oil market analysis provider Vanda Insights, said in a note.
Oil producers and refiners are running at full-throttle to meet peak summer demand, while traders are closely watching for any possible impact from labour disputes in Libya, Norway and South Korea on oil exports and consumption.
To boost supplies in the West, Saudi Arabia, the world’s top exporter, planned to divert some crude to Europe from China in July, traders said.