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Picture: 123RF/PAN DENIM
Picture: 123RF/PAN DENIM

London — Oil fell by almost $1 on Tuesday as concerns over a possible recession and China’s Covid-19 curbs outweighed tight global supply and the expectation of a pickup in fuel demand with the US summer driving season.

Investment banks including UBS and Goldman Sachs have cut their 2022 China growth outlooks. The head of the IMF, meanwhile, said she does not expect a recession for major economies but cannot rule it out.

“Downgraded China GDP growth forecasts and increasing worries about wider virus restrictions in Beijing have pushed oil prices lower,” said Jeffrey Halley, analyst at brokerage Oanda.

Brent crude fell 56c, or 0.5%, to $112.86 a barrel by 8.15am GMT. US West Texas Intermediate (WTI) crude dropped 72c, or 0.7%, to $109.57.

“Global economic growth is precipitously declining under the collective impact of rising interest rates, Chinese Covid flare-ups and the European war,” said Tamas Varga of oil broker PVM.

Beijing is stepping up quarantine efforts to end its month-old outbreak while Shanghai’s prolonged lockdown is due to be lifted in a little more than a week.

Oil prices have surged this year, with Brent crude hitting $139 a barrel in March for its highest since 2008, after Russia’s invasion of Ukraine worsened supply concerns.

Despite worries about threats to the global economy — a main theme of the Davos meeting talking place this week — tight supply limited the downside for prices.

In a step that analysts say will further tighten the market, the EU is moving closer to agreeing a ban on Russian oil imports. Such an embargo is likely to be agreed “within days”, Germany’s economy minister said on Monday.

Another source of support is US fuel demand. This Memorial Day weekend is the traditional start of the US summer driving season, when fuel demand usually peaks.

Analysts expect US fuel and crude inventories to drop in the latest weekly reports.

Reuters

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