Oil prices dropped on Thursday as investors remained cautious about dwindling fuel demand in China, the world’s biggest oil importer, due to Covid-19 restrictions.
Brent crude futures fell $1.48, or 1.41%, to $103.84 a barrel by 4.26am GMT. US West Texas Intermediate crude futures slipped $1.39, or 1.36%, to $100.63 a barrel.
Both contracts settled over 30 US cents higher in the previous session due to ongoing concerns about tight worldwide supply, and another drawdown in US distillate and petrol stocks.
The US Energy Information Administration said crude stocks rose by just 692,000 barrels last week, short of expectations, while distillate inventories, which include diesel and jet fuel, fell to their lowest level since May 2008.
China’s capital Beijing closed some public spaces and stepped up checks at others on Thursday, as most of the city’s 22-million residents embarked on more Covid-19 mass testing aimed at averting a Shanghai-like lockdown.
“Lockdown in China remains top of mind and the main opposing driver [to upside prices],” said Stephen Innes, managing partner at SPI Asset Management.
Asia’s biggest oil refiner, Sinopec, expects China’s demand for refined oil products to recover in the second quarter as Covid-19 outbreaks in the country are gradually controlled.
Analysts also pointed out that a slowdown in global growth due to higher commodity prices and an escalation in the Russia-Ukraine conflict could further exacerbate worries on oil demand.
Investors are trying to balance supply and demand concerns over Russian oil and gas disruption, and a worsening global economic outlook, said Ajay Kedia, director at energy consultancy Kedia Advisory.
The global economy will expand more slowly than predicted three months ago, according to a Reuters polls of more than 500 economists.
Median forecasts for global growth collected in April’s Reuters polls on over 45 economies were chopped to 3.5% in 2022 and 3.4% for 2023, from 4.3% and 3.6% in a January poll.
That compares to an IMF prediction of 3.6% growth in both years.
Meanwhile in Japan, another major crude oil buyer, the central bank on Thursday maintained its massive stimulus programme and a pledge to keep interest rates ultra-low, to support a fragile economy even as sharp rises in raw material costs push up inflation.