Oil prices fall as demand in China, recession concerns outweigh supply problems – Latest news update

SINGAPORE (Reuters) – Oil prices fell Tuesday on recession concerns and the worsening COVID-19 outbreaks in China, fueling fears of lower fuel demand outweighing supply concerns.

Brent oil fell 31 cents, or 0.3%, to $97.61 a barrel at 0434 GMT, while US West Texas Intermediate (WTI) crude fell 36 cents, or 0.4%, to $91.43 a barrel.

Both benchmarks hit their highest since August on Monday, amid reports that leaders in China, the world’s largest crude oil importer, were weighing whether to leave the country’s strict COVID-19 restrictions.

However, Chinese health officials this weekend reaffirmed China’s commitment to its strict zero-COVID policy. Also, recent data showed that the country’s exports and imports contracted unexpectedly in October.

COVID cases escalated sharply in Guangzhou and other major Chinese cities, official data showed on Tuesday. The global manufacturing hub is battling its worst flare-up ever, testing its ability to avoid a Shanghai-style citywide lockdown.

“I think the advancing lockdowns, not to mention the doubling of the COVID exemption over the weekend, are not only rocking the long-standing oil market, but they continue to push the reopening story negatively for oil prices,” said Stephen Innes, that partner at SPI Asset Management.

A firmer dollar also weighed on oil prices. Oil is generally priced in US dollars, so a stronger dollar makes the commodity more expensive for holders of other currencies.

Market participants will be watching US CPI data for trading clues this week, said CMC Markets analyst Tina Teng.

“Given sticky inflation and rising interest rates in major Western countries, oil futures still estimate the possibility of a global economic recession,” Teng said.

“This, along with a slowdown in fuel demand in China, are reasons for the decline in oil futures prices in recent months.”

But short-term fundamentals for oil remain bullish, with focus returning to supply issues, analysts at ANZ Research said.

“The market is facing the deadline for European imports of Russian oil before the sanctions go into effect,” ANZ added.

The European Union’s ban on Russian oil, imposed in retaliation for Russia’s invasion of Ukraine, will take effect on December 5 and will be followed in February by a cessation of imports of oil products. Moscow calls its actions in Ukraine “a special operation”.

US crude inventories were expected to have risen by about 1.1 million barrels last week, a preliminary Reuters poll showed on Monday.

The poll was conducted ahead of reports from the American Petroleum Institute expected at 4:30 p.m. ET (2130 GMT) on Tuesday and the Energy Information Administration expected at 10:30 a.m. (1530 GMT) on Wednesday.