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Oil prices dropped 2 percent on Monday, extending last week’s steep losses on the back of a rising US dollar and concerns that new pandemic curbs in Asia, especially China, may set back the global recovery in fuel demand.
Brent crude futures slid $1.41, or 2 percent, to $69.29 a barrel by 01:25 GMT, after having slumped 6 percent last week, their biggest weekly loss in four months.
United States’s West Texas Intermediate (WTI) crude futures fell $1.32, or 1.9 percent, to $66.96 a barrel, after having slumped nearly 7 percent 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 significant 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.
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.
On Monday, China reported 125 new COVID-19 cases, up from 96 a day earlier.
“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.”
In Malaysia and Thailand, infections continue to hit daily records of more than 20,000.
Oil also fell as the US dollar rallied to a four-month high against the euro after Friday’s stronger-than-expected United States jobs report spurred bets that the Federal Reserve may move more quickly to tighten US monetary policy.
A stronger US dollar makes oil more expensive for holders of other currencies.
Trading was quiet with holidays in Japan and Singapore.
Oil has run into stiff headwinds this month as the fast-spreading Delta variant sweeps across the globe, leading to renewed restrictions on movement in some regions and coinciding with a production boost from the Organization of the Petroleum Exporting Countries and its allies (OPEC+). The International Energy Agency will provide an updated snapshot of the market on Thursday.
OPEC+ will make monthly supply hikes of 400,000bpd from August and continue until all of its pandemic-related output reduction is reversed. While the latest COVID-19 flare-up is clouding the outlook, expectations are that the market will be able to absorb the additional barrels as demand accelerates.
