Crude Oil
A stronger greenback makes dollar-priced oil more expensive for holders of other currencies. Image Credit: Reuters

London: Oil prices tumbled 3 per cent on Thursday, as new COVID-19 lockdown measures in China added to worries that high inflation and interest rate hikes are denting fuel demand.

Brent crude futures fell $1.95, or 3.2 per cent, to $92.64 a barrel by 11.34am ET (7.34pm UAE time). US West Texas Intermediate (WTI) crude futures slid $2.81, or 2.9 per cent, to $86.84 a barrel.

“Western-world oil demand, as well as China’s, is stagnant, while supplies are expanding incrementally, largely on the back of the US shale boom,” said Julius Baer analyst Norbert Rucker.

Asia’s factory activity slumped in August as China’s zero-COVID curbs and cost pressures continued to hurt businesses, surveys showed on Thursday, darkening the outlook for the region’s fragile recovery.

Southern Chinese tech hub Shenzhen tightened COVID-19 curbs as cases kept increasing. Large events and indoor entertainment were suspended for three days in the city’s most populous district, Baoan.

The main European stocks index fell to seven-week lows as worries deepened about aggressive rate hikes to fight record inflation.

The dollar index hit a 20-year high after US data showed a resiliently strong economy, giving the Federal Reserve more room to raise interest rates. A stronger greenback makes dollar-priced oil more expensive for holders of other currencies.

“China doing another round of COVID lockdowns at major export terminals,” said Dennis Kissler, senior vice president of trading at BOK Financial, which along with the “super strong US dollar is causing further fund liquidation in crude futures”.

A possible revival of a 2015 Iran nuclear deal which would allow the OPEC member to boost its oil exports also weighed on prices. French President Emmanuel Macron said he hoped a deal would be concluded in coming days.

Oil market volatility grew this year on concerns about inadequate supply in the months after Russia’s attack on Ukraine and as OPEC struggles to increase output.

OPEC’s output hit 29.6 million barrels per day (bpd) in the most recent month, according to a Reuters survey, while US output rose to 11.82 million bpd in June. Both are at their highest levels since April 2020.

Still, the oil market will have a small surplus of just 400,000 bpd in 2022, much less than forecast earlier, according to OPEC and its partners - known as OPEC+ - due to underproduction of its members, data from the group showed. The group expects an oil market deficit of 300,000 bpd in 2023.

Meanwhile, US crude stocks fell by 3.3 million barrels, the US Energy Information Administration said on Wednesday, while gasoline stocks were down 1.2 million barrels.

Finance ministers from the Group of Seven group of wealthy nations will discuss the US Administration’s proposed price cap on Russian oil when they meet on Friday, the White House said.