Tuesday July 12, 2022

Oil Slides as renewed China COVID Curbs Temper Fuel Demand Outlook

SINGAPORE: Oil prices fell on Tuesday as fresh COVID-19 curbs in China, the world’s biggest crude importer, and fears of a global economic slowdown weighed on the fuel demand outlook.

Brent crude futures for September fell $1.35, or 1.3%, to $105.75 a barrel by 0305 GMT, while U.S. West Texas Intermediate crude for August delivery was at $102.64 a barrel, down $1.45, or 1.4%.

“Growing fears of a recession and continued sluggish demand in China are pulling oil prices lower, though the current supply-demand balances remain precarious,” analysts from consultancy Eurasia Group said in a note.

Multiple Chinese cities are adopting fresh COVID-19 curbs, from business halts to lockdowns, to rein in new infections as the highly infectious BA.5.2.1 subvariant has been detected in the country.

“While China may take a more targeted approach in trying to squash any outbreak, we will need to see how this plays out given the country’s COVID zero policy,” said Warren Patterson, head of commodity research at ING.

“Overall, demand concerns are still driving price action. However, fundamentals are constructive, given the tight supply situation which is set to continue for at least the remainder of the year. As a result, we expect downside in prices will be limited.”

Western sanctions on Russia over the war in Ukraine, which Russia calls a “special military operation”, have disrupted trade flows for crude and fuel.

There have also been other curtailments of energy supply routes from Russia, a major supplier of oil, fuel and natural gas to Europe, that have traders and utilities on edge.

Worries of a disruption at the Caspian Pipeline Consortium’s system (CPC) eased after a Russian court Monday overturned an earlier ruling suspending operations at the pipeline for 30 days.

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