Oil prices fell below $100 a barrel yesterday for the second time in a week amid concerns that fresh restrictions to tackle the coronavirus pandemic in China could dampen demand.
The Chinese economic outlook, dimmed by lockdowns to contain Covid-19 outbreaks, appeared to be the major cause of the decline, along with increasing signs of a global economic slowdown. China is the world’s leading oil importer, and the second-largest consumer after the United States.
Brent crude, the global benchmark price, fell by about 7% to touch lows of $99.47 a barrel at one stage before recovering to $99.90.
Oil prices generally have been above $100 a barrel, with the exception of a few brief dips, since Russia’s invasion of Ukraine in February. Last week concern that recession would hit demand led to oil falling below $100 for the first time since April, touching lows of $98.50. Fears of a recession have continued to weigh and contributed to yesterday’s sell-off.
“We’re past the point where the market was tightest, and I think from here we’re going to see oil inventories rising and prices moderate,” said Michael Lynch, president of Strategic Energy and Economic Research, told The New York Times.
“China is a big part of it. They have been carrying oil demand for 10 years.”
The drop in crude prices comes as President Biden prepares to visit Saudi Arabia this week in an attempt to persuade the Kingdom to increase its oil output, although analysts think that the American leader is unlikely to succeed.
The Times reports that Janet Yellen, the US Treasury secretary, is in Asia to discuss ways to strengthen sanctions on Moscow, including a price cap on Russian oil to limit the country’s profits and help to lower energy prices.
Fatih Birol, executive director of International Energy Agency, said that any price caps on Russian oil should include refined products.
However, Torbjorn Soltvedt, an analyst at Verisk Maplecroft, a risk intelligence company, told The Times: “US calls on Saudi Arabia to increase the rate of oil production have fallen on deaf ears.
"This is unlikely to change. Aside from uncertainty over Saudi spare capacity, it is now too late for a shift in Saudi oil production to impact petrol prices in the US ahead of November’s midterm elections. Opec+ supply restraint is also set to end in September in any case, paving the way for a steady increase in Saudi supply over the coming months.”