Oil Prices Slide As China Reaffirms Covid Containment Strategy

• Last week, rumors spread on social media that China was easing its Covid policies, pushing oil prices higher despite a lack of evidence.
• Oil prices fell on Monday morning as Chinese government officials signaled that the government had no intention of changing its Covid strategy.
• Weaker-than-expected Chinese export data and signs of weakening demand around the world added to the downward pressure on oil prices.

Crude oil started the week down as the latest updates from China, which included a reiteration of Beijing’s commitment to zero Covid tolerance and weaker-than-expected October exports, added to bearish sentiment.

Over the weekend, Chinese government officials signaled the government had no intention of changing its approach to Covid containment, which meant large-scale lockdowns will continue in case of infection flare-ups, affecting demand for crude.

Last week, unverified reports on social media said there were signals Beijing may reconsider its strict approach to Covid and that boosted oil prices for a short while but in the absence of official confirmation of the news the boost was short-lived.

Brent gained 2.9 percent thanks to the renewed hope of an end to lockdowns and West Texas Intermediate added 5.4 percent on the news, per Reuters.

As a result of the latest update, today in morning trade in Asia crude oil was trading about one percentage point lower than Friday close.

The latest data on Chinese exports contributed to the bearish sentiment, too. Exports fell by 0.3 percent in October on an annual basis, missing analyst expectations, which were for an increase of 4.3 percent.

Imports also fell, the data showed, by 0.7 percent, versus expectations for moderate growth of 0.1 percent.

Meanwhile, some analysts are reporting signs of weakening oil demand in some parts of the world.

"The market is still dealing with signs of weakness in oil demand from already high prices and the weak economic backdrop in developed markets," ANZ analysts said in a note quoted by Reuters today. In it, they also pointed out that oil demand in Europe and the United States has fallen to 2019 levels.

The analysts forecast oil demand will only add some 600,000 bpd during the current quarter as a result of this weakening and slow down further in 2023.

By Irina Slav for Oilprice.com

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