Growing concerns over demand saw oil prices slide on Monday after major importer China reiterated its commitment to maintaining its economically disruptive zero-COVID policy, as it faces its worst outbreak in nearly six months.
Over the weekend, officials from China’s National Health Commission said that current policy on battling COVID-19, which entails strict movement curbs and potential lockdown measures to curb the spread of the virus, would remain in place.
The world’s largest oil importer is now facing a resurgence in infections, which saw the reintroduction of COVID curbs in several areas, dispelling recent speculation over a potential pivot by China on the zero-COVID policy, which had triggered a week-long rally in equity and commodity markets.
China’s zero-COVID policy ground economic activity in the country to a halt this year, severely denting its demand for oil as major economic hubs, including Shanghai, clamped down on travel.
Fears of slowing demand in China weighed heavily on oil prices this year, pulling them off highs hit during the Russian invasion of Ukraine. Chinese trade data due later on Monday is expected to show a sustained decline in oil shipments to the country.
Brent oil futures fell 1.2% from a two-month high to $97.60 a barrel in early Asian trade, while West Texas Intermediate crude futures fell 1.3% to $91.47 a barrel. Both contracts rallied sharply last week on dovish signals from the Federal Reserve.
Four Fed officials said last week they support a smaller interest rate hike by the central bank in December, a move that offers some relief to risk driven assets that were walloped by rising interest rates will probably peak at higher levels than initially anticipated, markets are likely to remain under pressure in the medium-term, as the central bank signaled.
Outside China, crude demand appears to be resilient in the US and Europe. Oil prices rose last week after data showed a bigger-than-expected draw in weekly US oil inventories.
Organization of Petroleum Exporting Countries (OPEC) signaled that it stands ready to support crude prices with more supply cuts if needed if Western price caps on Russian crude exports are passed, and as its supply cut goes into effect later this year.
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