Oil prices crashed by 4% early on Monday to the lowest level since May, after the world’s top crude importer, China, imposed more travel restrictions to fight what it sees as the worst outbreak since the original viral outbreak in Wuhan.
Concerns about oil demand in China and the wider Asia region continued to weigh on oil prices at the start of this week. A stronger U.S. dollar also depressed oil prices as it makes crude more expensive for holders of currencies other than the greenback.
Following a large weekly loss in the first week of August, Brent Crude has now fallen below the $70 a barrel mark.
As of 7:28 a.m. EDT on Monday, the price of WTI Crude had slid 4.13% at $65.52 and Brent Crude was plunging by 3.88% at $68.00.
China is testing tens of millions of people and is suspending airline and long-haul bus trips from cities with reported COVID cases in an attempt to eradicate early the Delta variant outbreak in the country. The capital Beijing is also tightening travel restrictions, adding to the already growing concerns about fuel demand in the top oil importer in the world.
Brent is now trading below $70 per barrel “as the Covid-19 comeback led by the rapid spreading delta variant continues to raise concerns about the short-term outlook,” Saxo Bank said in a market commentary on Monday.
“Additional headwind has also emerged following last week’s dollar and yield rises which is likely to have led to reduced exposure from macro-oriented investors. The market is still expected to be able to absorb the announced production increases from OPEC+ and if not, the group is likely to step in to support prices,” Saxo Bank’s strategy team noted.
According to ING strategists Warren Patterson and Wenyu Yao, “The prompt ICE Brent time spreads have also narrowed from a backwardation of US$0.69/bbl a week ago to US$0.36/bbl currently, pointing to an easing of supply tightness in the spot market.”
By Tsvetana Paraskova for Oilprice.com
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So it is a matter of a short time before the pandemic is under control helped by the global access to billions of vaccines.
It helps also to remember that even at the height of the pandemic in 2020 and without the aid of vaccines, China’s crude oil imports broke records averaging 11.67 million barrels a day (mbd) or 14% over the 2019 average. So within a short time, China will control whatever cases of COVID are emerging and oil prices will resume their surge.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London