HomeBusinessOil drops 3% as China lockdowns fuel demand fear

Oil drops 3% as China lockdowns fuel demand fear

An oil pump jack pumps oil in a field near Calgary, Alberta, Canada on July 21, 2014. REUTERS/Todd Korol

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  • China’s Shenzhen is broadening COVID-19 thresholds as the number of cases increases
  • China’s August factory activity shrinks as orders weaken
  • Dollar index hits 20-year high
  • OPEC+ sees tighter market in 2022, 2023

HOUSTON, Sept. 1 (Reuters) – Oil prices fell more than 3% on Thursday as new COVID-19 lockdown measures in China raised concerns that high inflation and interest rate hikes are denting fuel demand.

Brent oil fell $3.28 to $92.36 a barrel, down 3.4%. US West Texas Intermediate (WTI) crude futures fell $2.94, or 3.3%, to $86.61 a barrel.

“Demand for oil from the western world, as well as from China, is stagnating, while inventories are increasing incrementally, largely due to the US shale boom,” said Julius Baer analyst Norbert Rucker.

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Factory activity in Asia slumped in August as China’s zero-COVID restrictions and cost pressures continued to hurt businesses, surveys showed Thursday, darkening the outlook for the region’s fragile recovery. read more

South China tech hub Shenzhen has tightened COVID-19 restrictions as the number of cases continued to rise. Major events and indoor entertainment were suspended for three days in Baoan, the city’s most populous district. read more

The main European stock index fell to its seven-week low as concerns about aggressive rate hikes to combat record inflation mounted. read more

The dollar index hit its 20-year high after US data showed a resiliently strong economy, giving the Federal Reserve more room to raise interest rates. A stronger dollar makes dollar-priced oil more expensive for holders of other currencies.

“China is doing another round of COVID lockdowns at major export terminals,” said Dennis Kissler, senior vice president of trade at BOK Financial, which along with the “super-strong US dollar is causing further liquidation of funds in crude futures.”

A possible revival of a 2015 nuclear deal with Iran that would allow the OPEC member to boost its oil exports also weighed on prices.

French President Emmanuel Macron said he hopes a deal will be struck in the coming days. read more

Oil market volatility has increased this year on concerns over supply shortages in the months after Russia sent forces to Ukraine and as OPEC struggles to increase production.

According to a Reuters survey, OPEC production reached 29.6 million barrels per day (bpd) last month, while US production rose to 11.82 million barrels per day in June.

Both are at the highest level since April 2020. read more

Still, the oil market will have a small surplus of just 400,000 barrels per day by 2022, much less than previously forecast, according to OPEC and its partners — known as OPEC+ — due to underproduction among its members, data from the group shows. read more

The group expects a deficit in the oil market of 300,000 bpd in 2023.

In the latest effort to bring Venezuelan oil to market, Chevron Corp. filed a new application with the US government to extend its license to operate in Venezuela, sources said. read more

Meanwhile, US crude oil inventories fell 3.3 million barrels, the US Energy Information Administration said Wednesday, while gasoline inventories fell 1.2 million barrels.

Treasury ministers from the Group of Seven Rich Countries will discuss the US government’s proposed price cap for Russian oil at their meeting on Friday, the White House said. read more

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Additional reporting by Ahmad Ghaddar in London, Yuka Obayashi in Tokyo; adaptation by David Gregorio, Alexander Smith and Nick Zieminski

Our Standards: The Thomson Reuters Trust Principles.

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