Oil falls as lockdowns dampen demand in China

London — Oil prices fell on Friday as concerns about Chinese cities in lockdown due to coronavirus outbreaks tempered a rally driven by strong import data from the world’s biggest crude importer and US plans for a large stimulus package.

Brent was down 93c, or 1.7%, at $55.49 by 9.50am GMT, after gaining 0.6% on Thursday. US West Texas Intermediate (WTI) crude was down 71c, or 1.3%, at $52.86 a barrel, having risen more than 1% the previous session.

Brent is heading for the first weekly decline in three weeks, while WTI is on track for a third weekly gain.

While producers are facing unparalleled challenges balancing supply and demand equations with calculus involving vaccine rollouts vs lockdowns, financial contracts have been boosted by strong equities and a weaker dollar, which makes oil cheaper, along with strong Chinese demand.

“The recent resurgence in coronavirus infections, the appearance of new variants, delayed vaccine rollouts and renewed lockdown measures in most major, Organisation for Economic Co-operation and Development economies has clouded the economic and demand recovery,” said Stephen Brennock of oil broker PVM. “Simply put, near-term demand expectations aren’t too promising.”

A nearly $2-trillion Covid-19 relief package in the US unveiled by president-elect Joe Biden may increase oil demand from the world’s biggest crude consumer, but worse-than-expected jobs data cast a shadow over the plans.

Crude imports into China were up 7.3% in 2020, with record arrivals in two out of four quarters as refineries increased runs and low prices prompted stockpiling, customs data showed on Thursday.

But China reported the highest number of daily Covid-19 cases in more than 10 months on Friday, capping a week that has resulted in more than 28-million people under lockdown and the country’s first death from the coronavirus in eight months.

“Oil market euphoria is unequivocally strong, but market indicators from Asia are mixed,” RBC Capital Markets said. “China, the global engine of oil demand growth, is wrestling with fresh Covid-19 outbreaks.”

Reuters