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Oil prices drop on fears China demand may slow

oil prices

Oil prices dropped on Thursday, reversing a more-than-3 per cent rally in the previous session, as lingering fears over slack demand in China outweighed optimism from record US crude exports and a weaker US dollar.

Brent crude futures fell 25 cents, or 0.3 per cent, to $95.44 a barrel by 0652 GMT, giving up an early gain. US West Texas Intermediate (WTI) crude slid 25 cents, or 0.3 per cent, to $87.66 a barrel, also surrendering earlier gains.

US crude stocks rose 2.6 million barrels last week, according to weekly government data on Wednesday, with crude exports rising to 5.1 million barrels a day, the most ever.

“Solid US crude exports raised optimism over demand and prompted fresh buys, but concerns that China’s muddled economic policies may continue under President Xi Jinping’s growing power weighed on sentiment,” said Hiroyuki Kikukawa, general manager of research at Nissan Securities.

Global investors dumped Chinese assets early this week on fears that ideology may increasingly trump growth under China’s most powerful leader since Mao Zedong.

The World Bank on Wednesday said it expects energy prices to decline by 11 per cent in 2023 after this year’s 60 per cent surge following Russia’s invasion of Ukraine, although slower global growth and COVID restrictions in China could lead to a deeper fall. Moscow calls its actions in Ukraine “a special operation”.

The slide in oil prices comes despite the dollar’s weakness which makes greenback-denominated crude less expensive for other currency holders.

The dollar stood close to a more than one-month low against a basket of currencies on Thursday, amid growing hopes that the US Federal Reserve will shift to less aggressive interest rate hikes to temper recession risks.

Meanwhile, US and Western officials are finalising plans to impose a cap on Russian oil prices amid a warning from the World Bank that any plan will need active participation of emerging market economies to be effective.

Officials said no price range has been decided yet, however one person familiar with the process said the cap will be determined in line with the historical average of $63-64 a barrel – a level that could form a natural upper limit.

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