Oil drops 3% as lockdowns in China stoke demand fears

  • Shenzhen in China expands COVID-19 restrictions as cases rise
  • Chinese factory activity in August declines as orders fall
  • Dollar index at 20-year high
  • OPEC+ predicts market tightening in 2022, 2023

HOUSTON, Sept 1 (Reuters) – Oil prices fell more than 3% on Thursday as new COVID-19 lockdown measures in China added to concerns that high inflation and interest rate hikes interest are hurting fuel demand.

Brent crude settled at $3.28 at $92.36 a barrel, down 3.4%. U.S. West Texas Intermediate (WTI) crude futures fell $2.94, or 3.3%, to $86.61 a barrel.

“Demand for oil from the Western world, as well as from China, is stagnating, while supply is gradually increasing, largely thanks to the US shale boom,” said Julius Baer analyst Norbert Rucker.

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

South China’s technology hub Shenzhen has tightened COVID-19 restrictions as cases continue to rise. Major events and indoor entertainment have been suspended for three days in the city’s most populous district, Baoan. Read more

Europe’s main stock index fell to its lowest level in seven weeks as concerns intensified over aggressive rate hikes to tackle record inflation. Read more

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

“China is proceeding with another round of COVID lockdowns at key export terminals,” said Dennis Kissler, senior vice president of commerce at BOK Financial, which along with the “super strong U.S. dollar is causing another sell-off in funds in crude futures”.

A possible relaunch of a 2015 Iran nuclear deal that would allow the OPEC member to increase oil exports also weighed on prices.

French President Emmanuel Macron said he hoped a deal would be reached in the coming days. Read more

Oil market volatility has increased this year on worries about insufficient supply in the months after Russia sent military forces to Ukraine and as OPEC strives to increase its output.

OPEC production reached 29.6 million barrels per day (bpd) in the most recent month, according to a Reuters survey, while U.S. production hit 11.82 million bpd in June.

Both are at their highest levels since April 2020. read more

Yet the oil market will post a slight surplus of just 400,000 bpd in 2022, far less than previously forecast, according to OPEC and its partners – known as OPEC+ – due to underproduction by its members, according to group data. Read more

The group expects an oil market deficit of 300,000 bpd in 2023.

In the latest attempt to bring Venezuelan oil to market, Chevron Corp has submitted a new application to the US government to extend its operating license in Venezuela, sources said. Read more

Meanwhile, U.S. crude inventories fell 3.3 million barrels, the U.S. Energy Information Administration said on Wednesday, while gasoline inventories fell 1.2 million barrels. barrels.

Finance ministers from the rich Group of Seven countries will discuss the US administration’s proposed price cap for Russian oil when they meet on Friday, the White House said. Read more

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Additional reporting by Ahmad Ghaddar in London, Yuka Obayashi in Tokyo; edited by David Gregorio, Alexander Smith and Nick Zieminski

Our standards: The Thomson Reuters Trust Principles.

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. Oil drops lockdowns China stoke demand fears

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