Oil prices fell on Friday after China, the world’s top crude oil importer, widened its COVID-19 curbs, but were poised for a weekly gain on supply concerns ahead of Europe’s pending cut-off of Russian imports.
Brent crude futures dropped $1.02, or 1.1 per cent, to $95.94 a barrel at 0635 GMT, after rising 1.3 per cent in the previous session. US West Texas Intermediate (WTI) crude futures were down $1.24, or 1.4 per cent, at $87.84 a barrel.
Still, both benchmark oil contracts were on course for a weekly rise, with Brent heading for a gain of more than 2 per cent and WTI more than 3 per cent.
Friday’s declines came after Chinese cities on Thursday doubled down on COVID-19 curbs, sealing up buildings, locking down districts and throwing millions into distress in a scramble to halt widening outbreaks.
China reported 1,506 new COVID-19 infections on Oct. 27, the National Health Commission said on Friday, up from 1,264 new cases a day earlier.
The International Monetary Fund expects China’s growth to slow to 3.2 per cent this year, a 1.2-point downgrade from its April projection, after an 8.1 per cent rise in 2021.
“The oil market has benefited from a weaker dollar and hope for a strong Chinese economic rebound, but now the focus is shifting towards recession risks that are dragging down the crude demand outlook forecasts for the rest of the year,” said Edward Moya, senior market analyst at OANDA.
However, analysts said the strong rebound in US gross domestic product in the third quarter reported on Thursday highlighted the resilience of the world’s largest economy and oil consumer.
“From an oil market perspective – despite the high interest rates – that’s a direct driver into your demand outlook,” said Baden Moore, head of commodities research at National Australia Bank.
He said volatility in the market is likely to be on the upside, given that global inventories are low, European sanctions on Russian crude are set to take effect in December, and Chinese demand is picking up.
The widening premium for Brent over WTI is being stoked by signs of a rise in refinery runs in China, Europe’s hunger for crude ahead of the Russian oil embargo, and pending supply cuts by the Organization of Petroleum Exporting Countries (OPEC) and allies.
“The market remains wary of the impending deadlines for European purchases of Russian crude before the sanctions kick in on 5 December,” ANZ Research analysts said in a note.
