Beijing COVID alert suppresses hopes for rapid recovery of demand in China
Oil prices slumped on Monday as the flare-up in COVID-19 cases in Beijing stifled hopes for a quick recovery in China's fuel demand, with concerns over global inflation and sluggish economic growth also weighing on the market.
Brent crude futures were down $1.81, or 1.48%, to $120.20 as of 0443 GMT, while West Texas Intermediate (WTI) crude was down $1.86, or 1.54%, to $118.81 a barrel. Both contracts fell over $2 at the start of the session.
Prices fell after Chinese officials warned of the spread of COVID-19 in the capital on Sunday and announced plans to hold mass tests in Beijing by Wednesday.
The gradual normalization of Chinese demand is a strong positivity for oil. However, China remains a significant downside risk in the near term. Current demand is far from reflecting normal conditions and there are potential quarantine uncertainties for the coming weeks.
Both global oil benchmarks last week amid data showing strong oil demand in the United States, the world's largest consumer, despite inflation concerns, and hopes that consumption in China, the second-largest global consumer, will recover after quarantine measures are lifted from 1 June rose more than %1.
Concerns that interest rate hikes will continue after the hot US inflation data announced on Friday are also putting pressure on global financial markets.
The US consumer price index rose 8.6% last month, more than expected, the biggest annual increase since December 1981, breaking hopes that inflation has peaked, official figures show.
Worries about slowing economic growth, which reduces global consumption in the coming months, and persistent COVID restrictions in China, which negatively affect consumption in the short term, are affecting the market sentiment.
As oil producers and refiners work at full throttle to meet high summer demand, traders are watching closely the potential impact of business disputes in Libya, Norway, and South Korea on oil exports and consumption.
Saudi Arabia, the world's largest exporter, is said to be planning to transfer some crude oil from China to Europe in July to increase supply in the West.
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