Oil prices fall amid China COVID curbs, possible interest rate hikes

An IPC Petroleum France oil pump is seen at sunset outside Soudron, near Reims, France, August 24, 2022. REUTERS/Pascal Rossignol/File Photo

SINGAPORE, Sept 12 (Reuters) – Oil prices fell on Monday with the outlook for global fuel demand overshadowed by COVID-19 restrictions in China and the potential for further interest rate hikes in the United States and Europe.

Brent crude futures fell $1.01, or 1.1%, to $91.83 a barrel by 0630 GMT, after settling 4.1% higher on Friday. US West Texas Intermediate crude was down $1.13 at $85.66 a barrel, or 1.3%, after rising 3.9% in the previous session.

Prices were little changed last week as gains from a nominal supply cut by the Organization of the Petroleum Exporting Countries (OPEC) and allies including Russia, a group known as OPEC+, were offset by ongoing shutdowns in China, the world’s biggest crude importer.

China’s oil demand could contract for the first time in two decades this year as Beijing’s zero-Covid policy keeps people at home for holidays and cuts fuel consumption. read more

“The continued presence of headwinds from China’s renewed virus restrictions and further moderation in global economic activities may still draw some reservations over a more sustained upside,” said Jun Rong Yeap, market strategist at IG.

“The overall negatives seem to outweigh the positives,” Yeap said, adding the $85 mark for Brent oil prices could be in sight.

Meanwhile, the European Central Bank and Federal Reserve are prepared to raise interest rates further to tackle inflation, which could lift the value of the US dollar against currencies and make dollar-denominated oil more expensive for investors.

“Concerns about demand centered on the impact of rising interest rates to combat inflation and China’s zero COVID policy,” Commonwealth Bank of Australia analyst Vivek Dhar wrote in a note.

Nevertheless, global oil prices may pick up again towards the end of the year – supply is expected to tighten further when an EU embargo on Russian oil comes into force on 5 December.

The G7 will implement a price cap on Russian oil to curb Russia’s lucrative oil export earnings after its invasion of Ukraine in February, and plans to take measures to ensure oil can still flow to emerging nations. Moscow calls its actions in Ukraine “a special operation”. read more

Reporting by Florence Tan and Jeslyn Lerh; Editing by Kenneth Maxwell

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