On Monday, oil prices fell more than $2 as a flare-up in COVID-19 cases in Beijing shattered expectations for a quick pick-up in China’s fuel demand. At the same time, fears about global inflation and weak economic development weighed on the market. Brent oil futures were down $2.33, or 1.89 percent, to $119.71 a barrel at 0647 GMT; meanwhile, West Texas Intermediate crude was down $2.27, or 1.88 percent, to $118.4 a barrel. Prices plunged over the weekend as Chinese officials warned of a “ferocious” spread of COVID-19 in Beijing. In a note, Stephen Innes of SPI Asset Management explained that China remains the largest near-term downside risk. Still, most consider the steady normalization of Chinese demand as a powerful positive for oil.
That was despite the possibility of lockdown noise in the coming weeks, according to Innes, who added that demand was still far from usual.
What to Expect in The Oil Market?
Last week, both global oil benchmarks increased more than 1% after statistics showed strong oil demand in the world’s largest consumer, the United States, despite fears about inflation. Their surge was bolstered by expectations of a rebound in consumption in China, the world’s second-largest consumer; following the lifting of trade restrictions on June 1. Concerns about more interest rate rises following Friday’s scorching inflation report in the United States are also impacting global financial markets. Official numbers indicated that the consumer price index in the United States grew by a larger-than-expected 8.6% last month; the highest annual gain since December 1981, putting an end to optimism that inflation had peaked.
Vandana Hari, the creator of research company Vanda (NASDAQ: VNDA) Insights, mentioned in a note that the worries about slowing global GDP, lowering worldwide demand in the next months, and prolonged COVID limitations in China denting domestic consumption in the medium term.
Oil producers and refiners are working overtime to fulfill summer demand. At the same time, traders keep a careful eye on the impact of labor unrest in Libya, Norway, and South Korea on oil exports and consumption. Dealers say that the top exporter, Saudi Arabia aims to transfer some petroleum from China to Europe in July; this will increase supply in the West.