Oil prices slide on worries about China COVID surge, possible global recession

Oil prices fell on Wednesday on concerns that rising COVID-19 cases in China, the world’s top oil importer, will disrupt its economic recovery as it unwinds its pandemic restrictions, limiting fuel demand growth.

Brent futures for February delivery fell 68 cents, or 0.8 per cent, to $83.65 a barrel, by 0710 GMT. US crude fell 46 cents, or 0.6 per cent, to $79.07 per barrel.

Both benchmarks rose to their highest in three weeks on Tuesday on hopes for a fuel demand boost after the country said it will stop requiring inbound travellers to go into quarantine starting from Jan. 8, a major step towards relaxing stringent curbs on its borders.

But Chinese hospitals have been under intense pressure due to a surge in COVID-19 infections as the country moves towards treating the virus as endemic.

“Even after China eased COVID restrictions, it is difficult for demand to recover in a short time due to the rapid decline of people’s outdoor activities due to the massive infection (numbers),” said Leon Li, an analyst at CMC Markets.

Oil refiners in the US on Tuesday were working to resume operations at a dozen facilities knocked offline by freeze weather across much of the country, a recovery that in some cases will stretch into January.

The Arctic blast that sent temperatures well below freezing also disrupted output, cutting oil and gas production from North Dakota and Texas.

Prices were buoyed by news that Russia aims to ban oil sales from Feb. 1 to countries that abide by a G7 price cap imposed on Dec. 5, according to a decree by President Vladimir Putin.

However, “while a Russian ban on oil sales would cut supply, this would be offset by lower demand due to a potential global economic recession next year”, Li added.

US crude oil stocks were estimated to have fallen 1.6 million barrels last week with distillate inventories also seen down, a preliminary Reuters poll showed on Tuesday.

Industry group the American Petroleum Institute is due to release data on US crude inventories at 4.30 p.m. EDT (2130 GMT) on Wednesday. The Energy Information Administration, the statistical arm of the US Department of Energy, will release its own figures at 10.30 a.m. (1530 GMT) on Thursday.