Oil drops on China COVID-19 curbs, dollar strength

© Reuters. FILE PHOTO: Oil tankers are seen at a terminal of Sinopec Yaogang oil depot in Nantong, Jiangsu province, China June 11, 2019. Picture taken June 11, 2019. REUTERS/Stringer/File Photo

By Sonali Paul

MELBOURNE (Reuters) -Oil prices fell more than 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 $1.52, or 2.2%, to $69.17 a barrel by 0657 GMT, after having slumped 6% last week, their biggest weekly loss in four months.

U.S. West Texas Intermediate (WTI) crude futures fell $1.64, or 2.4%, to $66.64 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. In Malaysia and Thailand, infections continue to hit daily records of more than 20,000.

Adding to the gloom, data released over the weekend 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.

"Both (benchmark crude) contracts look vulnerable to more bad news on the virus front, focusing on Mainland China. Markets will be sensitive to headlines suggesting that China's economic recovery is peaking as well after the weekend trade data," OANDA senior market analyst Jeffrey Halley said in a note.

China's crude oil imports dipped slightly on a daily basis in July to 9.71 million barrels per day (bpd), a 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.

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.