Oil prices dropped more than $2 on Monday as a flare-up in COVID-19 cases in Beijing dashed hopes for a rapid pick-up in China’s fuel demand, while worries about global inflation and sluggish economic growth further depressed the market.
Brent crude futures fell $2.3, or 1.89%, to $119.71 a barrel by 0647 GMT, while U.S. West Texas Intermediate crude was at $118.4 a barrel, down $2.27, or 1.88%.
Prices fell after Chinese officials warned on the weekend of a “ferocious” spread of COVID-19 in the capital, where mass testing is planned until Wednesday.
“China remains the significant near-term downside risk, but most view the gradual normalisation of Chinese demand as a powerful positive for oil,” Stephen Innes of SPI Asset Management said in a note.
That was despite the potential for lockdown noise in coming weeks, Innes added, with demand still far from reflecting normal conditions.
Both global oil benchmarks rose more than 1% last week after data showed robust oil demand in the world’s top consumer, the United States, despite inflation concerns.
Their rise was aided by hopes for a consumption rebound in second-biggest global consumer China after lockdown measures were lifted from June 1.
Concerns about further interest rate hikes after Friday’s red-hot U.S. inflation data are also weighing on global financial markets.
The U.S. consumer price index increased a bigger-than-expected 8.6% last month, in its largest annual increase since December 1981, official figures showed, dashing hopes that inflation had peaked
“Worries over slowing economic growth dampening global consumption in the coming months and persistent COVID curbs in China denting its consumption in the short term are dominating market sentiment,” Vandana Hari, founder of analysis provider Vanda Insights, said in a note.
Oil producers and refiners are running at full throttle to meet peak summer demand, while traders are watching closely for any possible impact from labour disputes in Libya, Norway and South Korea on oil exports and consumption.
To boost supplies in the West, top exporter Saudi Arabia plans to divert some crude to Europe from China in July, traders said.