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Oil Prices Drop as China’s Rising Covid-19 Cases Raises Concerns on Demand

Oil prices fell nearly 2% on Monday, extending last week’s steep losses on the back of a rising U.S. dollar and concerns that new pandemic curbs in Asia, especially China, may set back the global recovery in fuel demand.

Brent crude futures slid by $1.27, or 1.8%, to $69.43 a barrel by 0434 GMT, after having slumped 6% last week, their biggest weekly loss in four months.

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Brent Crude Futures, technical chart [tradingview]
U.S. West Texas Intermediate (WTI) crude futures fell $1.29, or 1.9%, to $66.99 a barrel, after having slumped nearly 7% last week in their steepest weekly decline in nine months.

“Concerns about potential global oil demand erosion have resurfaced with the acceleration of the Delta variant infection rate,” RBC analyst Gordon Ramsay said in a note.

ANZ analysts pointed to new restrictions in China, the world’s second-largest oil consumer, as a major factor clouding the outlook for demand growth.

The curbs include flight cancellations, warnings by 46 cities against travel, and limits on public transport and taxi services in 144 of the worst-hit areas.

On Monday, China reported 125 new Covid-19 cases, up from 96 a day earlier while in Malaysia and Thailand, infections continue to hit daily records of more than 20,000.

“While the number of cases (in China) is low, it comes just as the summer travel season peaks,” ANZ commodity analysts said in a note. “This has overshadowed signs of strong demand elsewhere.”

China’s crude oil imports dipped slightly on a daily basis in July to 9.71 million barrels per day (BPD), the fourth month in a row of imports below 10 million BPD and sharply down on a record 12.94 million BPD in June 2020 when refiners were stocking up on cheap crude, data released on Saturday showed.

China’s export growth slowed more than expected in July following outbreaks of Covid-19 cases and floods, while import growth was also weaker than expected, pointing to a slowdown in the country’s industrial sector in the second half.

A rally in the U.S. dollar to a four-month high against the euro also weighed on oil prices, after Friday’s stronger-than-expected U.S. jobs report spurred bets that the Federal Reserve may move more quickly to tighten U.S. monetary policy.

A stronger U.S. dollar makes oil more expensive for holders of other currencies.

Trading was quiet with holidays in Japan and Singapore.

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