China’s Covid policy, recession fears weigh on oil prices

Melbourne — Oil prices slid in early trade on Friday, extending losses from the previous session on fears US interest rates will go higher than previously expected and fresh concerns that Covid outbreaks will dent fuel demand in China. 

Brent crude futures dropped 22c, or 0.2%, to $94.45 a barrel at 12.25am GMT after falling 1.5% in the previous session. The contract was on track to fall more than 1% for the week.

US West Texas Intermediate (WTI) crude futures fell 27c, or 0.3%, to $87.90 a barrel, deepening a 2% loss from the previous session, but on course to end flat for the week.

Fears of a recession in the US, the world’s biggest oil consumer, grew on Thursday after Federal Reserve chair Jerome Powell said it was “very premature” to be thinking about pausing interest rate hikes.

“The spectre of further rate hikes dimmed hopes of a pickup in demand,” ANZ Research analysts said in a note.

Adding to the gloom, the Bank of England warned on Thursday that it thinks Britain has entered a recession and the economy might not grow for another two years.

ANZ analysts pointed to signs of weaker demand in Europe and the US with people driving less and Amazon warning of weaker sales, which could dampen demand for distillate for its deliveries.

Further hurting the outlook, China stuck to its strict Covid-19 curbs as cases rose on Thursday to their highest since August. Investors earlier in the week had thought the world’s largest oil importer may be moving towards easing restrictions to boost the economy.

With softer demand in China, Saudi Arabia lowered December official selling prices for its flagship Arab Light crude to Asia by 40c to a premium of $5.45 a barrel versus the Oman/Dubai average.

The cut was in line with trade sources’ forecasts.

Reuters