Oil Slides on Blockages in China, But Uptrends Intact

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NEW YORK – Oil prices fell on Thursday but still hovered near three-month highs after parts of Shanghai imposed new COVID-19 lockdowns as strong gains in refined products contributed to a continued bullish backdrop for crude oil.

Brent crude futures for August settled 51 cents at $123.07 a barrel, down 0.4%, while U.S. West Texas Intermediate crude for July lost 60 cents, or 0.5 %, at $121.51 a barrel.

Oil prices have risen steadily over the past two months, driven by sharp increases in refined product prices due to tight refining supply and rising demand.

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Refiners around the world have closed facilities and capacity is also constrained due to reduced activity in Russia, the world’s largest crude and fuel exporter, following its invasion of Ukraine. .

Peak summer gasoline demand in the United States continues to push crude prices higher. The United States and other countries have engaged in a series of releases of strategic reserves, but this has had only a limited effect so far, with global crude production increasing very slowly.

“I think higher energy prices are here for the rest of the year unless we see a breakthrough allowing a significant amount of crude oil to come back into the market,” said Andrew Lipow, president of Lipow Oil Associates in Houston.

U.S. gasoline inventories fell unexpectedly last week, government data showed Wednesday, indicating the resilience of fuel demand during the peak period despite sky-high pump prices. Four-week U.S. demand was around 9 million barrels per day, just 1% below the 2021 level.

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« Even though prices are higher, we haven’t yet seen a noticeable drop in demand, » said Thomas Saal, senior vice president of StoneX Financial. « It can happen from one day to the next, but people are still driving. »

Refiners have not been able to keep pace with demand. The United States is at near maximum processing capacity while China has kept refiners offline due to COVID restrictions.

China’s May exports jumped 16.9% from a year earlier as the easing of COVID restrictions allowed some factories to restart, the fastest growth since January this year and more than double the analyst expectations.

This might suggest that more refining capacity will eventually come online, but major Chinese metropolitan areas still have some COVID-related travel restrictions in place, dampening demand.

Parts of Shanghai began imposing new lockdown restrictions on Thursday, with residents of Minhang district ordered to stay at home for two days to control transmission risks. (Additional reporting by Noah Browning; Editing by Kirsten Donovan)