Oil dips on China supply concerns amid virus surge

Melbourne  — Oil prices fell for a fourth day on Thursday on concerns that new Covid-19 curbs in China, the world’s biggest crude importer, will affect fuel demand.

Brent crude futures fell 34c, or 0.4%, to $92.31 a barrel at 1.15am GMT. US West Texas Intermediate (WTI) crude futures were down 31c at $85.52 a barrel.

Brent prices have dropped more than 6% so far this week, while WTI is down more than 7%.

The manufacturing hub of Guangzhou, a city of 19 million people, on Thursday reported more than 2,000 new cases for November 9, the third day above that level, in the city’s worst outbreak so far. Millions of residents were told to get tested for Covid-19 on Wednesday, and one city district has been locked down, as local cases across China reached their highest since April 30.

Adding to market gloom was a big build in US crude inventories reported on Wednesday.

“Unfortunately for oil bulls, that was only the tip of the iceberg, as a run of bearish economic headlines put China in the headlights … as a spike in local [Covid-19] cases weighs like an anvil on oil markets,” SPI Asset Management managing partner Stephen Innes said in a note.

Crude oil stockpiles rose by 3.9 million barrels last week, the US Energy Information Administration (EIA) said, taking inventories to their highest since July 2021.

However, gasoline inventories fell by 900,000 barrels to their lowest since November 2014 and distillate stockpiles fell by 500,000 barrels.

Bearishness around the rise in US crude oil stockpiles may have been overdone, Commonwealth Bank analyst Vivek Dhar said.

He noted that distillate stockpiles, which include diesel, heating oil and jet fuel, fell to their lowest in a decade and the number of days those inventories can meet expected demand is at 26, nearly five days below the five-year average, “indicating much tighter conditions than US oil or gasoline markets”.

In a note to clients, Dhar forecasts that Brent will average about $95 a barrel in the fourth quarter as oil markets will tighten after the implementation of the EU’s planned ban on Russian seaborne oil imports starting on December 5 in response to Russia’s invasion of Ukraine.

Reuters