Oil Prices Fall Despite China’s COVID Restrictions

Oil prices saw a decline on Monday. This happened because COVID-19 curbs in China clouded the forecast for global fuel consumption. Moreover, the possibility of more interest rate increases in the US and Europe also affected the prices.

After closing 4.1% higher on Friday, Brent oil futures fell $1.01, or 1.1%, to $91.83 a barrel by 0630 GMT. After rising by 3.9%, U.S. WTI oil was down $1.13 at $85.66 a barrel, or 1.3%. The OPEC+ nominally reduced their output last week. Still, continuous lockdowns in China negated the gains.

COVID-19 and Energy Markets

Beijing’s zero-COVID policy encourages people to stay inside for the holidays. This lowers gasoline consumption. Because of this, China’s oil demand may decline this year for the first time in twenty years. According to Jun Rong Yeap, market strategist at IG, the persistence of headwinds from China’s strengthened viral restrictions and further slowing in global economic activities might still attract some worries over a more persistent gain.  Yeap stated that the overall downsides exceed the positives and that it would soon be possible to see Brent oil prices reach the $85 level.

Meanwhile, the Fed and the ECB are ready to raise interest rates further to combat inflation. The rise might enhance the dollar value relative to other currencies and increase the dollar-denominated oil price for investors.

Demand worries were mostly related to China’s COVID-zero policy and the impact of rising interest rates to fight inflation, according to a report by Commonwealth Bank of Australia (OTC: CMWAY) analyst Vivek Dhar. The oil supply may still tighten further by the end of the year due to the European Union’s ban on Russian oil, which will go into force on December 5.