Oil Falls as China’s COVID Rise Weaken Hopes for Recovery

Oil prices continued to slide on Thursday as the rising number of COVID-19 infections in top crude importer China weakened the possibility of fuel demand bouncing back in the country.

Global benchmark Brent crude futures fell 1.8% to $82.46 per barrel, while US benchmark West Texas Intermediate dropped 1.8% to $77.53 per barrel.

The extent of the recent outbreak in China and uncertainty over official figures has led some countries to implement new travel requirements for Chinese travelers, despite Beijing’s move to ease its strict zero-COVID policy.

The decision to enact some new travel rules may be a factor that causes previous optimism in the oil market to fade.

Oil Demand Recovery Remains Uncertain

For 2023, oil prices could recover, although it would come down to the speed of reopening the world’s second-largest economy and whether market players see the growth risk as a trade-off to tighter monetary policies from central banks.

Adding to the weakness, the Federal Reserve is expected to make another interest rate hike as it tries to put a cap on price surges in a tight labor market.

Citing data from the American Petroleum Institute (API), market sources said US crude oil inventories declined by 1.3 million barrels in the week ending December 23, less than expectations for a 1.5-million barrel draw.

Oil prices also slipped after US energy company TC Energy Corp. stated that it was taking steps to resume operations in the part of the Keystone pipeline that shut down due to a leak earlier this month.

That, however, came as a severe winter storm in the country halted operations in several oil refining facilities, supporting supplies.

Oil refiners continued to increase operations, although some of the rebound is seen extending to next month.

Still, markets found strength in Russian President Vladimir Putin’s move to ban crude oil exports from February 1 for five months to countries that follow the oil price cap on Russian fuel set by the Group of Seven (G7).

Moscow’s ban has “no practical significance” for Germany, saying it has been working since spring to replace Russian oil supplies and ensure a secured stockpile.