Oil falls as concerns over lower China demand mount

Singapore — Oil prices fell in volatile trade on Tuesday as investor concerns about lower demand in China, the world’s biggest crude importer, and further increases in US and European interest rates offset worries about tight fuel supplies ahead of winter.

Brent crude slid 34c, or 0.4%, to $93.66 a barrel by 4.45am GMT, while WTI crude declined by 20c, or 0.2%, to $87.58 a barrel. Both contracts fell by more than $1 earlier in the session, snapping a three-day rally.

Covid-19 curbs in China, the world’s second-largest oil consumer, renewed concerns about lower global fuel demand.

The number of journeys taken during the country’s three-day mid-autumn festival dropped by more than a third compared with last year, a state media report said on Monday, as the country’s zero-Covid policy discouraged people from travelling.

“The extensive Covid lockdowns and mass testing in China weigh on oil markets due to demand concerns,” said Tina Teng, an analyst at CMC Markets. “Plus the odds for the Fed to keep aggressive rate hikes will be strengthened if US CPI comes out hotter than expected.”

US consumer price index (CPI) data are set for release at 12.30pm GMT on Tuesday and while expectations are that the core inflation rate may show a peak, the European Central Bank and the Federal Reserve are prepared to increase interest rates further to tackle inflation.

That could lift the value of the US dollar against other global  currencies and make dollar-denominated oil more expensive for investors. Worries over tighter inventories also buoyed prices.

In the US, the Strategic Petroleum Reserve (SPR) fell 8.4-million barrels to 434.1-million barrels in the week ended September 9, the lowest since October 1984, according to data released on Monday by the department of energy.

US President Joe Biden in March set a plan to release 1-million barrels a day over six months from the SPR to tackle high US fuel prices, which have contributed to inflation.

US commercial oil stockpiles are expected to have fallen for five weeks in a row, dropping by about 200,000 barrels in the week to September 9, a preliminary Reuters poll showed on Monday.

The American Petroleum Institute (API), an industry group, will issue its inventory report at 8.30pm GMT on Tuesday. The US energy information administration reports at 2.30pm GMT on Wednesday.

Prospects for a revival of the West’s nuclear deal with Iran remained dim. Germany expressed regret on Monday that Tehran had not responded positively to European proposals to revive the 2015 agreement.

Reuters