Oil prices dropped on Thursday as investor remained cautious about dwindling fuel demand in China, the world’s biggest oil importer, due to COVID-19 restrictions.
Brent crude futures fell $1.48, or 1.41%, to $103.84 a barrel by 0426 GMT. U.S. West Texas Intermediate crude futures slipped $1.39, or 1.36%, to $100.63 a barrel.
Both contracts settled over 30 cents higher in the previous session due to ongoing concerns about tight worldwide supply, and another drawdown in U.S. distillate and gasoline stocks.
The U.S. Energy Information Administration said crude stocks rose by just 692,000 barrels last week, short of expectations, while distillate inventories, which include diesel and jet fuel, fell to their lowest since May 2008.
China’s capital Beijing closed some public spaces and stepped up checks at others on Thursday, as most of the city’s 22 million residents embarked on more COVID-19 mass testing aimed at averting a Shanghai-like lockdown.
“Lockdown in China remains top of mind and the main opposing driver (to upside to prices),” said Stephen Inns, managing partner at SPI Asset Management.
Asia’s biggest oil refiner, Sinopec Corp, expects China’s demand for refined oil products to recover in the second quarter as COVID-19 outbreaks in the country are gradually controlled.
Analysts also pointed out that a slowdown in global growth due to higher commodity prices and an escalation in the Russia-Ukraine conflict could further exacerbate worries on oil demand.
Investors are trying to balance supply and demand concerns over Russian oil and gas disruption, and a worsening global economic outlook, said Ajay Kedia, director at energy consultancy Kedia Advisory.
The global economy will expand more slowly than predicted three months ago, according to Reuters polls of over 500 economists.
Median forecasts for global growth collected in this month’s Reuters polls on over 45 economies were chopped to 3.5% this year and 3.4% for 2023 from 4.3% and 3.6% in a January poll.
That compares to an International Monetary Fund prediction of 3.6% growth in both years.
Meanwhile in Japan, another major crude oil buyer, the central bank on Thursday maintained its massive stimulus program and a pledge to keep interest rates ultra-low, to support a fragile economy even as sharp rises in raw material costs push up inflation.
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