Oil Prices Decline as China Contains COVID, Possible Rate Hike Affects Demand Outlook

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

SINGAPORE, Sep 12 (Reuters) – Oil prices slipped during Asian deals on Monday as the prospect of further interest rate hikes in the US and Europe to curb inflation and impose severe COVID-19 restrictions in China overshadowed the outlook for global demand.

Brent futures fell 78 cents, or 0.9%, to $86.01 a barrel by 0040 GMT after rising 4.1% on Friday. US West Texas Intermediate traded at $92.11 a barrel, down 73 cents, or 0.8%, after rising 3.9% in the prior session.

Prices were largely flat last week as profits from nominal supply cuts by the Organization of the Petroleum Exporting Countries (OPEC) and its allies, including Russia, known as the group known as OPEC+, were offset by ongoing lockdowns in China, the world’s largest oil importer. .

China’s oil demand could shrink for the first time in two decades this year as Beijing’s COVID-19 policy forces people to stay home during the holidays and reduces fuel consumption. read more

“Demand-side concerns were related to the impact of higher interest rates on fighting inflation and China’s COVID-19 policies,” Vivek Dhar, an analyst at Commonwealth Bank of Australia, wrote in a note.

The European Central Bank and the Federal Reserve are ready to raise interest rates even further to fight inflation, which could boost the value of the US dollar against other currencies and make dollar-denominated oil more expensive for investors.

However, global oil prices could recover towards the end of the year, with supply expected to shrink further when the European Union’s embargo on Russian oil comes into effect on Dec. 5.

The G7 will set a cap on Russian oil prices to limit Russia’s lucrative oil export earnings after its invasion of Ukraine in February, and plan to take steps to ensure that oil can still flow to developing countries. Moscow calls its actions in Ukraine a “special operation”. read more

Reporting by Florence Tan; Editing by Kenneth Maxwell

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