Oil drifts lower as swelling China Covid cases dampen sentiment

Oil slid as investors weighed China’s renewed commitment to strict anti-Covid policies.

Brent crude dropped near $97 a barrel, after losing ground in the week’s opening session as China reaffirmed its commitment to its Covid Zero strategy, including demand-sapping movement curbs and lockdowns. On Monday, more than 7,000 local cases were reported in the world’s largest crude importer, the highest daily number in more than six months. 

As risks to China’s demand grow, the Middle Eastern Dubai benchmark has come under pressure. Brent was heading for its biggest closing premium versus Dubai since June on Tuesday.

Brent has flirted with a run at $100 a barrel this week, spurred by last week’s optimism that China would ease its Covid Zero strategy, along with a weakening US dollar. Goldman Sachs said that the risks to oil prices remain on the bullish side, with global inventories depleted and spare capacity limited.

“Focus has slowly but surely shifted a bit toward demand, with China talking about exiting the Covid strategy once more,” said Hans van Cleef, senior energy economist at ABN Amro. It is “difficult to break higher as recession risks still cap the upside potential while, at the same time, the risk of lower supply is providing some support.”

Prices

  • WTI for December delivery fell 1.3 per cent to $90.63 a barrel at 10:34 a.m. in London
  • Brent for January settlement was 1 per cent lower at $96.93 a barrel

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