Crude oil lower; Demand concerns mount as China’s COVID cases rise By

© Reuters.

By Peter Nurse — Oil prices fell Monday as China reported a tightening of COVID restrictions as cases rose, raising fears of reduced demand at the world’s largest crude importer as economic activity is impacted.

By 09:05 ET (14:05 GMT), futures traded 1% lower at $79.33 a barrel, while the Brent contract fell 0.9% to $86.80, falling to near two-month lows.

Both benchmarks closed Friday at their lowest since Sept. 27, with U.S. crude down 10% and Brent 9% lower.

China reported its first deaths from COVID-19 in several months, including three in Beijing, while nationwide case numbers surged past their April highs with outbreaks in both Beijing and Shanghai, where localized lockdowns were once again in force.

China’s domestic demand is likely to fall sharply if the current wave of COVID outbreaks forces a return to more restrictive mobility measures.

Influential investment bank Goldman Sachs has responded to this upsurge in cases by cutting its fourth-quarter forecast for by $10 a barrel to $100, the second forecast cut since September.

Also weighing on the crude market Monday was the rise in the U.S. dollar, which makes the commodity, which is denominated in dollars, more expensive for foreign buyers.

The , which tracks the greenback against a basket of six other currencies, climbed Monday to its highest level since Nov. 11.

This selloff has resulted in speculators reducing their net-long positions over the last reporting week, with the ICE Brent net-long falling by almost 30,000 lots and the NYMEX WTI by just over 20,000 lots.

“This move was largely driven by longs liquidating, rather than fresh shorts,” said analysts at ING, in a note.

As far as the supply situation is concerned, the looming European Union ban on Russian seaborne flows and Group of Seven price-cap plan are clouding the outlook, amid reports that European buyers have reportedly been stockpiling ahead of Dec. 5, when the ban is due to take effect.

“We could get more clarity on the G-7 price cap for Russian oil on Wednesday, including the level at which the group intends to set the cap,” ING added. 

EU energy ministers are also scheduled to meet on Thursday to try to move closer towards an agreement on their latest energy measures for the region.

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