Oil prices dropped on Thursday on caution about dwindling fuel demand in China, the world’s biggest oil importer, due to the economic impact of COVID-19 restrictions.
Brent crude futures had fallen 62 cents, or 0.59%, to US$104.70 a barrel by 0712 GMT. U.S. West Texas Intermediate crude futures slipped 48 cents, or 0.47%, to US$101.54 a barrel.
Both contracts had settled over 30 cents higher on Wednesday on worries about tight worldwide oil supplies and another drawdown in U.S. distillate and gasoline stocks.
The U.S. Energy Information Administration said crude stocks rose by just 692,000 barrels last week, short of expectations, but distillate inventories, which include diesel and jet fuel, fell to their lowest since May 2008.
In China, Beijing closed some public spaces and stepped up COVID-19 checks at others on Thursday, as most of the city’s 22 million residents embarked on more mass testing aimed at averting a Shanghai-like lockdown, which has disrupted factories and supply chains raising concerns about the outlook for the country’s economic growth.
“Lockdown in China remains top of mind and the main opposing driver (to upside to prices),” Stephen Innes, managing partner at SPI Asset Management, said in a note.
Despite the oil demand concerns about China, Asia’s biggest oil refiner, Sinopec Corp, expects the country’s demand for refined oil products to recover in the second quarter as COVID-19 outbreaks are gradually controlled.
Analysts also said that a slowdown in global growth due to higher commodity prices and an escalation in the Russia-Ukraine conflict could further exacerbate worries on oil demand.
Investors are trying to balance supply and demand concerns over Russian oil-and-gas disruption, and a worsening global economic outlook, said Ajay Kedia, director at energy consultancy Kedia Advisory.
The global economy will expand more slowly than predicted three months ago, according to Reuters polls of over 500 economists.
Median forecasts for global growth collected in this month’s Reuters polls on more than 45 economies were chopped to 3.5% this year and 3.4% for 2023 from 4.3% and 3.6% in a January poll.
That compares to an International Monetary Fund prediction of 3.6% growth in both years.
Meanwhile in Japan, another major crude oil buyer, the central bank on Thursday maintained its massive stimulus programme and a pledge to keep interest rates ultra-low, to support a fragile economy even as sharp rises in raw material costs push up inflation.