Oil slumps to 11-month low as China COVID unrest rattles markets

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By Ambar Warrick 

AiVIF.com-- Oil prices fell sharply to a near 11-month low on Monday as escalating protests in several major Chinese cities ramped up concerns over increased economic disruptions in the world’s largest crude importer,

Brent oil futures dropped 2.6% to $74.31 a barrel in early Asian trade, while West Texas Intermediate crude futures sank 2.4% to $81.69 a barrel. Both contracts extended sharp declines from last week and were trading at their weakest level since early-January. 

Civil unrest broke out in several major Chinese cities over the weekend, as a growing number of civilians took to the streets to express their discontent with the country’s strict zero-COVID policy. 

The protests come in the wake of new COVID-related restrictions introduced over the past two months, as China once again grapples with record-high daily infections. This has also battered crude markets with the prospect of weakening demand in the world’s largest oil importer. 

The country’s crude imports have fallen steadily this year, showing few signs of recovery. Increased oil export quotas in the country also indicate that local consumption remains weak. 

The recent protests also mark a rare display of civil disobedience rarely seen in China since President Xi Jinping assumed power over a decade ago. His government’s commitment to its strict zero-COVID policy ground economic growth to a halt this year, with data due later this week expected to show a sustained decline. 

Crude prices are also under pressure from major importers China and India buying heavily discounted crude from Russia, while Western nations struggle to impose a price cap on Moscow’s oil exports.

On the supply side, focus is also now on an upcoming meeting of the Organization of Petroleum Exporting Countries and its allies (OPEC+), due later this week, for any more production cuts.

The cartel announced a 2 million barrel per day supply cut in October, and vowed more such moves to help support oil prices. Given that prices are trading well below levels that spurred October’s cut, the cartel may trim production further. 

Oil prices also took some relief from recent weakness in the dollar, amid growing expectations that the Federal Reserve will raise interest rates at a slower pace in the coming months. This scenario is likely to also help ease concerns over slowing U.S. economic growth.