Oil down 2% as China Covid-19 cases trigger clampdowns

Oil prices fell on Friday, retreating further from 11-month highs hit last week, weighed down by worries that new pandemic restrictions in China will curb fuel demand in the world’s biggest oil importer.

Brent crude futures fell $1.31, or 2.3%, to $54.79 a barrel by 1230 GMT, after a $0.02 gain on Thursday. US West Texas Intermediate (WTI) crude futures dropped $1.3, or 2.45%, to $51.83, a day after slipping $0.18.

“The biggest source of concern for the energy complex right now is rising coronavirus cases in China,” said Stephen Brennock of broker PVM. “This will dampen the near-term consumption outlook in the world’s epicentre for global oil demand growth.”

Recovering fuel demand in China underpinned market gains late last year while the United States and Europe lagged, but that source of support is fading as a fresh wave of Covid-19 cases has sparked new restrictions.

The commercial hub of Shanghai reported its first locally transmitted cases in two months on Thursday, and Beijing is urging people not to travel during the upcoming Lunar New Year holiday, when tens of millions of urban workers typically head to their home towns.

The market was awaiting official oil inventory data from the US Energy Information Administration (EIA) on Friday, after industry data on Wednesday showed a surprise 2.6-million-barrel increase in US crude inventories last week compared with analysts’ forecasts for a 1.2-million-barrel draw. The report will be published at 1600 GMT.

“Global oil demand could decline marginally in the first quarter of 2021 as many regions, including many European countries, have re-introduced mobility restrictions,” analysts at Fitch Ratings said in a note.

“The positive effects of vaccination programmes on the oil demand recovery may not be visible for several months until a critical mass of population is inoculated.”