Oil slumps as COVID concerns in China potentially hit demand
Oil prices fell in volatile trading on Monday, potentially slumping demand as markets prepare for new mass COVID tests in China, reversing some of the gains from the previous session.
Brent crude futures fell $1.02, or 1%, to $106.00 at 0605 GMT, after climbing 2.3% on Friday.
West Texas Intermediate (WTI) crude futures were down 2% to $103.41, down $1.38 or 1.3% from Friday.
Trade was idle in parts of Southeast Asia, including the oil trading hub of Singapore, for a public holiday.
The market was rocked by news that China's first case of a highly contagious Omicron sub-variant was discovered in Shanghai, with new cases rising to 63 from 52 the day before in the country's largest city.
Traders said they were nervous that the discovery of the new sub-variant and the highest daily number of new cases in Shanghai since May could lead to another round of mass testing that will hurt fuel demand.
Both benchmark crude contracts traded lower in early trade on Monday, turned positive, then turned back down again after the latest COVID news from China.
Despite its ongoing supply tightness, net longs on WTI crude futures are at their lowest since March 2020, when demand fell during the initial outbreak of COVID-19.
U.S. President Joe Biden will meet with Saudi Arabian leaders this week to mend ties with the world's largest oil producer, following the killing of Washington Post journalist Jamal Khashoggi in 2018.
Even the idea of repairing the relationship between Saudi Arabia and the United States is important. However, the market does not expect Biden to return immediately with supply support.
The market remains tense over Western countries' plans to curb Russian oil prices, with President Vladimir Putin warning that further sanctions could have "catastrophic" consequences in the global energy market.
Another important factor for traders to watch is the maintenance of the Nord Stream 1 pipeline, the largest pipeline transporting Russian gas to Germany, from 11 to 21 July.
The time until the pipeline starts operating again as planned on 22 July is likely to wreak havoc on Europe's gas demand, leading to an economic slowdown and reducing oil demand.
Questions also remain about how much more crude oil will flow from Kazakhstan through the Caspian Pipeline Consortium (CPC). Supply has so far continued in the pipeline, which carries around 1% of global oil, despite a Russian court order suspension of operations last week.
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