Oil drops after Beijing warns of Covid-19 and fears of inflation


Oil rigs at the Vaca Muerta oil and shale gas exploration field, in Patagonia’s Neuquén province, Argentina, January 21, 2019. REUTERS/Agustin Markarian/File Photo

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  • Comprehensive testing for coronavirus in Chaoyang District, Beijing
  • US inflation data heightens fears of more big rate hikes
  • Turmoil cuts Libyan oil production in half

LONDON (Reuters) – Oil fell nearly $2 a barrel on Monday as the outbreak of COVID-19 cases in Beijing dented hopes for a rebound in Chinese demand, while concerns about interest rate hikes to control rampant inflation added more pressure. .

Beijing’s most populous Chaoyang District has announced three rounds of mass testing to quell the “vicious” COVID-19 outbreak that emerged last week. Group tests will be held until Wednesday. Read more

Brent crude fell $1.86, or 1.5 percent, to $120.15 at 0907 GMT, while US West Texas Intermediate crude fell $2.15, or 1.8 percent, to $118.52.

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“The current price drop was exacerbated by warnings of a ‘vicious’ spread of the Covid virus in Beijing by officials, which cast doubt on the immediate recovery of demand,” said Tamas Varga of BVM oil brokerage.

Concern about further rate hikes, heightened by US inflation data on Friday which showed the US Consumer Price Index rose 8.6% last month, also pushed oil lower and weighed on financial markets.

The data put markets on alert that the Fed could tighten policy for too long and cause a sharp slowdown. Next Fed policy decision on Wednesday.

Oil surged in 2022 as Russia’s invasion of Ukraine exacerbated supply fears and as demand for oil recovered from COVID lockdowns. Brent crude hit $139, the highest level since 2008, in March, and both benchmarks rose more than 1% last week.

Supply remains tight, with OPEC and its allies unable to meet all of the pledged production increases due to a lack of capacity at many producers, sanctions against Russia, and production in Libya almost halved due to the unrest. Read more .

“The supply/demand dynamics remain supportive of prices,” said Jeffrey Haley of brokerage at OANDA, who sees an extended oil sell off unlikely “unless US markets move into prices in a full-blown recession” and there are new shutdowns in China. .

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Additional reporting by Florence Tan and Mohi Narayan; Editing by Mark Potter

Our criteria: Thomson Reuters Trust Principles.

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