Oil drops 2% in light trading on China demand concern

Oil prices dipped on Wednesday as traders weighed concerns over a surge in Covid-19 cases in China, the world’s top oil importer, against the chances easing pandemic restrictions in the country will boost fuel demand.

Brent crude futures fell $1.69, or two per cent, to $82.64 a barrel by 1501GMT, while the US West Texas Intermediate crude futures fell $1.55, or two per cent, to $77.98 per barrel.

China said it will stop requiring inbound travellers to go into quarantine from January 8, a major step towards relaxing stringent curbs on its borders.

However, Chinese hospitals have been under intense pressure due to a surge in Covid-19 infections.

“Even after China eased Covid restrictions, it is difficult for demand to recover in a short time due to the rapid decline of people’s outdoor activities due to the massive infection (numbers),” said Leon Li, an analyst at CMC Markets.

Oil markets were also buffeted by rising expectations of another interest rate hike in the United States, as the US Federal Reserve tries to limit price rises in a tight labor market.

Trading volumes over this week are expected to be lower than usual as the end of the year approaches, leading to volatility in oil prices.

Both benchmarks had hit their highest in three weeks on Tuesday, as a cold snap across the US forced shutdowns at production sites and refineries, including production and refining shutdowns across North Dakota and Texas at the weekend.

Meanwhile, Russia said it aims to ban oil sales from February 1 to countries that abide by a G7 price cap imposed on December 5, although details of how the ban would work were unclear.

US crude oil stocks were estimated to have fallen 1.6 million barrels last week with distillate inventories also seen down, a preliminary Reuters poll showed on Tuesday. — Reuters

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