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

 

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

As protests in several major Chinese cities heated up, worries about further economic disruptions in the world's largest crude importer increased, sending oil prices plummeting sharply to a nearly 11-month low on Monday.

Early Asian trading saw a 2.6% decline in Brent oil futures to $74.31 per barrel and a 2.4% decline in West Texas Intermediate crude futures to $81.69 per barrel. Both contracts were trading at their lowest levels since early January as they continued their week's sharp declines.

As more citizens marched to the streets to protest the nation's rigorous zero-COVID policy, civil disturbance broke out over the weekend in many significant Chinese cities.

The protests follow the implementation of new COVID-related restrictions over the previous two months as China struggles once more with daily infection rates that are at an all-time high. With the possibility of declining demand in the largest oil importer in the world, this has also negatively impacted crude markets.

The nation's oil imports have been continuously declining this year with few signs of improvement. Increased oil export quotas in the nation also show that domestic demand is still low.

Since President Xi Jinping took office more than ten years ago, the most recent protests also mark a rare incident of civil disobedience. His government's strict zero-COVID policy prevented economic growth this year, and data that will be released later this week are likely to show that the trend has continued.

While Western nations try to enforce a price restriction on Moscow's oil shipments, key consumers China and India are pressuring crude prices by purchasing Russian petroleum at steep discounts.

In order to support oil prices, the cartel announced a 2 million barrel per day output cut in October. The cartel may reduce production even more given that prices are already trading at levels that were the catalyst for the October cut.

Amid growing anticipation that the Federal Reserve will raise interest rates at a slower pace in the upcoming months, oil prices also received some relief from recent dollar weakening. This scenario is probably going to help allay worries about the slowing of the US economy.