Oil rig, oil field
China's curbs and uncertainty over Russia moves cloud the picture for oil. Image Credit: Shutterstock

Singapore: Oil prices fell on Tuesday as fresh Covid curbs in China, the world’s biggest crude importer, and fears of a global economic slowdown weighed on the outlook for fuel demand. Brent crude futures for September had fallen $1.81 to $105.29 a barrel, while US West Texas Intermediate crude for August delivery was at $102.14 a barrel, down $1.95.

“Growing fears of a recession and continued sluggish demand in China is pulling oil prices lower, though the current supply-demand balances remain precarious,” analysts from consultancy Eurasia Group said in a note. Multiple Chinese cities are adopting fresh Covid curbs, from business halts to lockdowns, to rein in new infections as the highly infectious BA.5.2.1 subvariant appears in the country.

“While China may take a more targeted approach in trying to squash any outbreak, we will need to see how this plays out given the country’s Covid zero policy,” said Warren Patterson, head of commodity research at ING. However, fundamentals were constructive, considering the tight supply situation, which was set to continue for at least the remainder of the year, he said, adding that this would limit downside in prices.

Western sanctions on Russia over the war in Ukraine, have disrupted trade flows for crude and fuel.

IEA’s take

International Energy Agency Executive Director Fatih Birol said any price caps on Russian oil should include refined products. “My hope is that the proposal, which is important to minimise the effect on the economies around the world, gets buy-in from several countries,” said Birol.

Oil prices also fell as worries of a disruption at the Caspian Pipeline Consortium’s system (CPC) eased after a Russian court Monday overturned an earlier ruling suspending operations at the pipeline for 30 days. However, traders and analysts remain fearful that Russia will suspend the pipeline, which carries oil from Kazakhstan to the Black Sea. The suspension could disrupt 1 per cent of global crude supply.

Biden’s visit

US President Joe Biden would make the case for greater oil production from OPEC when he met Gulf leaders in Saudi Arabia this week, White House National Security Adviser Jake Sullivan said on Monday. “Little hope is being assigned to Biden’s visit to Saudi Arabia unlocking more production from them or the UAE,” said Jeffrey Halley Oanda’s senior market analyst for Asia-Pacific said in a note.