Oil slides 3% as China lockdowns stoke demand fears

An oil pump jack pumps oil in a field near Calgary, Alberta, Canada on July 21, 2014. REUTERS/Todd Korol

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  • China’s Shenzhen widens COVID-19 restrictions as cases rise
  • China’s August factory activity shrinks as orders weaken
  • Dollar index hits 20-year high
  • OPEC+ sees tighter market in 2022, 2023

LONDON, Sept 1 (Reuters) – Oil prices tumbled 3% on Thursday, as new COVID-19 lockdown measures in China added to worries that high inflation and interest rate hikes are denting fuel demand.

Brent crude futures fell $1.95, or 3.2%, to $92.64 a barrel by 1134 am ET (1535 GMT). US West Texas Intermediate (WTI) crude futures slide $2.81, or 2.9%, to $86.84 a barrel.

“Western-world oil demand, as well as China’s, is stagnant, while supplies are expanding incrementally, largely on the back of the US shale boom,” said Julius Baer analyst Norbert Rucker.

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Asia’s factory activity slumped in August as China’s zero-COVID curbs and cost pressures continued to hurt businesses, surveys showed on Thursday, darkening the outlook for the region’s fragile recovery. read more

Southern Chinese tech hub Shenzhen tightened COVID-19 curbs as cases kept increasing. Large events and indoor entertainment were suspended for three days in the city’s most populous district, Baoan. read more

The main European stocks index fell to seven-week lows as worries deepened about aggressive rate hikes to fight record inflation. read more

The dollar index hit a 20-year high after US data showed a resiliently strong economy, giving the Federal Reserve more room to raise interest rates. A stronger greenback makes dollar-priced oil more expensive for holders of other currencies.

“China doing another round of COVID lockdowns at major export terminals,” said Dennis Kissler, senior vice president of trading at BOK Financial, which along with the “super strong US dollar is causing further fund liquidation in crude futures,”

A possible revival of a 2015 Iran nuclear deal which would allow the OPEC member to boost its oil exports also weighed on prices.

French President Emmanuel Macron said he hoped a deal would be concluded in coming days. read more

Oil market volatility grew this year on concerns about inadequate supply in the months after Russia sent military forces into Ukraine and as OPEC struggles to increase output.

OPEC’s output hit 29.6 million barrels per day (bpd) in the most recent month, according to a Reuters survey, while US output rose to 11.82 million bpd in June.

Both are at their highest levels since April 2020. read more

Still, the oil market will have a small surplus of just 400,000 bpd in 2022, much less than forecast earlier, according to OPEC and its partners – known as OPEC+ – due to underproduction of its members, data from the group showed. read more

The group expects an oil market deficit of 300,000 bpd in 2023.

Meanwhile, US crude stocks fell by 3.3 million barrels, the US Energy Information Administration said on Wednesday, while gasoline stocks were down 1.2 million barrels.

Finance ministers from the Group of Seven group of wealthy nations will discuss the US Administration’s proposed price cap on Russian oil when they meet on Friday, the White House said. read more

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Additional reporting by Ahmad Ghaddar in London, Yuka Obayashi in Tokyo; editing by Jason Neely, Kirsten Donovan and David Gregorio

Our Standards: The Thomson Reuters Trust Principles.


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