Oil is stabilizing as China’s fears of covid face tight supply concerns

Crude oil storage tanks were seen at the Kinder Morgan terminal in Sherwood Park, near Edmonton, Alberta, Canada November 14, 2016. REUTERS / Chris Helgren

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NEW YORK, July 11 (Reuters) – Oil prices changed little on Monday as markets balanced an expected drop in demand due to mass testing of COVID-19 in China against ongoing concerns about tight supply.

Brent futures fell 33 cents, or 0.3%, to $ 106.69 a barrel at 12:43 pm EDT (1643 GMT), while US West Texas Intermediate (WTI) oil fell 86 cents, or 0.8% , to $ 103.93.

With the US Federal Reserve expected to continue raising interest rates, the open interest rate in NYMEX futures fell on July 7 to its lowest level since October 2015, when investors cut risky assets.

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Last week, oil speculators cut their net long futures and options positions on the New York Mercantile and Intercontinental Exchanges to the lowest since April 2020.

“We still envisage a probable recession that from time to time will lead to a significant amount of liquidation out of the oil space followed by a refocusing on tight global oil supplies that have not yet shown any noticeable loosening,” analysts at Ritterbusch and Associates said in a note.

The market was rattled by news that China had discovered its first case of a highly transmissible Omicron sub-variant in Shanghai that could lead to a new round of mass testing, which would hurt fuel demand. read more read more

“The combined impact of concerns about global economic downturn and a renewed COVID outbreak can hardly come at a worse time for the oil markets,” Investec Risk Solutions said in a note.

Pressure on oil was also an increase in the US dollar against a basket of other currencies to the highest since October 2002. A stronger dollar reduces the demand for oil by making fuel more expensive for buyers using other currencies.

Eurozone finance ministers said the fight against inflation was the current priority despite declining growth in the bloc, as they were informed of a deteriorating economic outlook by the European Commission. read more

The market remains nervous about Western nations’ plans to curb Russian oil prices, and Russian President Vladimir Putin warns that further sanctions could lead to “catastrophic” consequences in the global energy market. read more

JP Morgan said the market was caught between concerns about a potential halt to Russian supplies and a possible recession.

“The macro risk is becoming more bilateral. A retaliation reduction of 3 million barrels per day in Russian oil exports is a credible threat, and if realized, it will drive the Brent crude oil price to about $ 190 per barrel,” the bank said in a note.

“On the other hand, the effect of significantly lower demand growth during recession scenarios will cause the Brent crude oil price to average around $ 90 / barrel during a mild recession and $ 78 / barrel during a more severe downturn scenario.”

There are also questions about how long more crude oil will flow from Kazakhstan via the Caspian Pipeline Consortium (CPC).

The supply has so far remained on the pipeline, which carries around 1% of global oil, with a Russian court overturning an earlier ruling stopping operations there. read more

Brazilian President Jair Bolsonaro, meanwhile, said it was close to an agreement with Moscow to buy much cheaper diesel from Russia. read more

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Further reporting by Sonali Paul in Melbourne and Noah Browning in London; Edited by Marguerita Choy and Krishna Chandra Eluri

Our standards: Thomson Reuters Trust Principles.

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