Oil Tumbles Almost 4% on China Concerns

© Reuters.

By Barani Krishnan 

AiVIF.com — When China sneezes, everything else catches a cold, apparently.

On Monday, it was oil.

Crude oil prices tumbled almost 4% after China's factory activity growth — measured by the Caixin/Markit Manufacturing Purchasing Managers' Index -- fell to 50.3 last month, its lowest since April 2020.

China’s economy had largely recovered from the disruptions caused by the first round of the coronavirus pandemic, but fears are growing that the highly-contagious Delta variant will pose new problems for the world's second-biggest economy.

“A slowdown in the world's second largest economy would be a big blow for the region at a time when numerous countries are struggling to get to grips with the latest Covid wave,” said Craig Erlam, analyst at New York’s OANDA.

While the overall number of infections in China is much lower than outbreaks elsewhere, there have been new cases registered in 14 of 32 provinces, raising the likelihood of additional strict containment measures.

“Clearly, Covid-19 still poses a risk to the demand recovery, particularly in countries where vaccination rates are still low,” said analysts at ING, in a

New York-traded West Texas Intermediate crude, the benchmark for U.S. oil, settled down $2.69, or 3.6%, at $71.26 a barrel. It was WTI’s sharpest one-day fall since July 16.

London’s Brent, the global benchmark for oil, was down $2.49, or 3.3%, at $72.92 by 3:05 PM ET (19:05 GMT), heading for its biggest drop since July 19.

Adding to the weight on oil was higher output from the Organization of the Petroleum Exporting Countries, which pumped an estimated 610 million barrels per day in July, its highest since April 2020, according to a Reuters survey.