The oil price rally fizzled out early on Monday as the U.S. dollar strengthened and as China further restricted movement amid doubled new COVID cases, prompting renewed concerns about oil demand.
The rally in oil, which last week posted its largest weekly gain since September, cooled off as this week began.
Last week, oil prices gained more than 8 percent after Saudi Arabia said last Tuesday that it would unilaterally cut 1 million barrels per day (bpd) from its crude oil production levels in February and March, giving the market a very positive surprise at the end of the OPEC+ ministerial meeting.
But this week, news out of China and a rising U.S. dollar snapped oil’s winning streak.
In China, authorities reported on Sunday a doubling of the new coronavirus cases, which resulted in stricter restrictions on movement in the world’s largest oil importer.
China has so far supported the oil market and oil prices with its healthy crude demand, while Europe and the U.S. were on lockdowns. Part of the new cases in China were imported, but nearly 50 were local transmissions, most of which in the Hebei province surrounding Beijing.
On Monday, the authorities reported the largest daily rise in COVID cases in mainland China in over five months.
A rising U.S. dollar also weighed on oil prices on Monday, as a stronger U.S. currency makes crude buying more expensive for holders of other currencies.
“Having broken above US$56/bbl briefly on Friday, ICE Brent has come under some selling pressure this morning in Asia, with a stronger USD providing some resistance to the market,” ING strategists Warren Patterson and Wenyu Yao said on Monday.
By Tsvetana Paraskova for Oilprice.com
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