Oil drops 3% as China lockdowns stoke demand fears

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HOUSTON — Oil prices fell 3% on Thursday as China’s new COVID-19 lockdown measures added to concerns that high inflation and interest rate hikes are hurting demand for fuel.

Brent crude futures fell $2.97 to $92.67 a barrel, a loss of 3.1%, at 11:48 a.m. EST (1648 GMT). U.S. West Texas Intermediate (WTI) crude futures fell $2.54, or 2.8%, to $87.01 a barrel.

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“Oil demand from the Western world, as well as from China, is stagnant, while supply is gradually increasing, largely thanks to the US shale boom,” said Julius Baer analyst Norbert Rucker.

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Asian factory activity slumped in August as zero-COVID restrictions and cost pressures in China continued to hurt businesses, surveys showed on Thursday, darkening prospects for the region’s fragile recovery.

South China’s technology hub Shenzhen has tightened COVID-19 restrictions as cases continue to rise. Major events and indoor entertainment have been suspended for three days in the city’s most populous district, Baoan.

Europe’s main stock index fell to its lowest level in seven weeks as concerns intensified over aggressive rate hikes to tackle record inflation.

The dollar index hit a 20-year high after US data showed a strong and resilient economy, giving the Federal Reserve more room to raise interest rates. A stronger greenback makes dollar oil more expensive for holders of other currencies.

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« China is carrying out another round of COVID lockdowns at key export terminals, » said Dennis Kissler, senior vice president of commerce at BOK Financial, which along with the « super strong U.S. dollar is causing funds to sell off again. in crude oil futures ».

A possible relaunch of a 2015 Iran nuclear deal that would allow the OPEC member to increase oil exports also weighed on prices.

French President Emmanuel Macron said he hoped a deal would be reached in the coming days.

Oil market volatility has increased this year on worries about insufficient supply in the months after Russia sent military forces to Ukraine and as OPEC strives to increase its output.

OPEC production reached 29.6 million barrels per day (bpd) in the most recent month, according to a Reuters survey, while U.S. production hit 11.82 million bpd in June.

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Both are at their highest levels since April 2020.

In the latest attempt to bring Venezuelan oil to market, Chevron Corp has submitted a new application to the US government to extend its operating license in Venezuela, sources said.

Yet the oil market will post a slight surplus of just 400,000 bpd in 2022, far less than previously forecast, according to OPEC and its partners – known as OPEC+ – due to underproduction by its members, according to group data.

The group expects an oil market deficit of 300,000 bpd in 2023.

Meanwhile, U.S. crude inventories fell 3.3 million barrels, the U.S. Energy Information Administration said on Wednesday, while gasoline inventories fell 1.2 million barrels. barrels.

Finance ministers from the rich Group of Seven countries will discuss the US administration’s proposed price cap for Russian oil when they meet on Friday, the White House said. (Additional reporting by Ahmad Ghaddar in London, Yuka Obayashi in Tokyo; Editing by Jason Neely, Kirsten Donovan and David Gregorio)