Oil falls by more than $1/bbl on fresh COVID-19 outbreaks in China

SINGAPORE (ICIS)–Crude prices fell more than $1/bbl on Monday on worries that China, the world’s second-largest oil consumer, will impose further lockdowns on the back of rising COVID-19 cases.

Recession fears also weigh down on the market, after IMF managing director Kristalina Georgieva warned that the downside risks to global economic outlook could deepen if inflation is more persistent.

02:00 GMT ($/bbl)	Contract	Low	High	Open	Last	Previous	Change	Low Change
Brent	Sept	99.46	101.5	100.82	100.85	101.16	-0.31	-1.7
WTI	Aug	95.85	98.03	97.27	96.9	97.59	-0.69	-1.74

COVID-19 cases in China continued to spike, with the outbreak appearing to spread, this time, across Gansu province and the autonomous region of Guangxi, which borders Vietnam.

On 16 July, China had 691 new COVID cases, up from 547 the previous day, with locally transmitted cases at the highest since 23 May.

Lanzhou, the capital city of Gansu, announced on 17 July that its main city districts would extend a temporary lockdown by another seven days to 24 July.

In China’s main financial hub and largest city of Shanghai, the situation “remains severe”, according to local authorities.

Residents across nine of the city’s 16 districts and several smaller areas are required to undergo COVID-19 testing on 19-21 July.

China’s second-quarter economic growth has slowed to an annualized rate of 0.4%, from 4.8% in the preceding quarter, amid the COVID-19 lockdowns.

On a quarter-on-quarter basis, the world’s second biggest economy shrank 2.6% in the second quarter, reversing the revised 1.4% gain in the previous quarter.

“Looking ahead, China’s economy continues to face the same set of challenges including COVID-19 resurgences and perhaps even greater pessimism in the domestic property market as well as high global energy and food prices that have seen global central banks tightening their monetary policies at an unprecedented pace,” Singapore-based UOB Global Economics & Markets Research said in a note on Monday.

In June, China’s crude oil imports fell by 11% year on year and 19% month on month to an average of 8.75m bbl/day – the weakest monthly import volume since July 2018.

Concerns about tightening global crude supply had sent crude prices climbing on 15 July, after a US official said that an immediate oil output boost by Saudi Arabia – the world’s biggest crude exporter – was not expected.

US President Joe Biden, who is currently on a trip to the Middle East, has failed to secure commitments for an immediate oil output increase.

Saudi Arabia, the de facto leader of oil cartel OPEC, has abstained from saying whether it will boost exports or not.

Market players generally expect state-owned Saudi Aramco to maintain its current output policy target following the cartel’s inability to meet previous targets.

Focus article by Nurluqman Suratman