Oil tumbles as China imposes fresh Covid curbs

London — Oil prices tumbled on Thursday, as fresh Covid-19 lockdown measures in China added to concern that high inflation and interest rate hikes are denting demand for fuel.

Brent crude futures fell $2.10, or 2.2%, to $93.54 a barrel by 10.13 GMT. West Texas Intermediate slid $1.86, or 2.1%, to $87.69.

“Western-world oil demand, as well as China’s, is stagnant, while supplies are expanding incrementally, largely on the back of the US shale boom,” said Norbert Rucker, an analyst at Julius Baer.

Asia’s factory activity slumped in August as China’s zero-Covid policy and cost pressures continued to hurt businesses, surveys showed on Thursday, darkening the outlook for the region’s fragile recovery.

Shenzhen, the tech hub in southern China, tightened Covid-19 restrictions as cases continued to mount, with large events and indoor entertainment suspended for three days in the city’s most populous district, Baoan.

The main European stocks index fell to seven-week lows on Thursday on deepening concern about aggressive rate hikes and record-high inflation in the region.

A possible revival of a 2015 Iran nuclear deal which would allow the Opec member to boost its oil exports also weighed on prices. French President Emmanuel Macron said on Thursday he hoped a deal would be concluded within days.

Recent oil market volatility has followed concerns about inadequate supply in the months after Russia invaded Ukraine and as Opec struggles to increase output.

Output from the organisation’s members reached 29.6-million barrels a day in the most recent month, according to a Reuters survey, while daily US output rose to 11.82MMbbl in June. Both are at their highest levels since April 2020.

Still, the oil market will have a small surplus of 400,000 bbl/day in 2022, much less than forecast earlier, according to Opec and its partners — collectively known as Opec+ — due to underproduction of its members. The group expects an oil market deficit of 300,000 bpd in 2023.

US crude stockpiles fell by 3.3MMbbl, the Energy Information Administration said on Wednesday, while petroleum stocks were down 1.2MMbbl.

Finance ministers from the Group of Seven group of wealthy nations will discuss the US’s proposed price cap on Russian oil when they meet on Friday, the White House said.

Reuters