By Ambar Warrick
Investing.com-- Oil prices fell on Monday, extending steep losses from last week as concerns over rising Chinese COVID-19 infections and a potential global recession dampened the outlook for demand.
Reports also suggested that crude supply in Europe had stabilized, with refiners steadily building up stocks ahead of a Western ban on Russian crude exports. But the ban is still expected to tighten crude supplies in the coming months, particularly if inventories deplete at faster-than-expected levels.
Still, Brent oil futures sank 1.1% to $86.82 a barrel in early Asian trade, while West Texas Intermediate crude futures fell 0.8% to $79.42 a barrel. Both contracts plummeted nearly 10% last week, and were trading at their weakest levels in two months.
Prices also entered “contango” mode last week, a market structure that heralds more price declines.
Rising COVID-19 cases in China invited new lockdown measures in some of the country’s biggest cities, drumming up concerns over slowing crude demand in the world’s largest oil importer. The country is currently struggling with its worst COVID outbreak since April, which had seen several cities placed under lockdown.
A report earlier this month said that several Chinese refiners asked Saudi Aramco (TADAWUL:2222) to supply lower amounts of oil in December, which could point to slowing oil shipments to the country.
China has also ramped up its refined fuel export quotas, potentially indicating a surplus in crude stockpiles due to waning demand.
Hawkish signals from the Federal Reserve drove up fears of a potential U.S. recession, with members of the central bank indicating that it will not curb its rate hikes until inflation is much closer to its annual target range. This pushed up the dollar, denting crude prices.
The minutes of the Fed’s November meeting, due later this week, are expected to shed more light on the path of U.S. monetary policy.
But recent weakness in crude markets has spurred speculation over more supply cuts by the Organization of Petroleum Exporting Countries and its allies (OPEC+). The cartel had enacted its biggest supply cut in two years in October, and signaled more such actions to stabilize crude prices.
The OPEC meets on December 4 to decide on production, with any further reduction in supply appearing likely to boost crude prices.
But while oil prices had rallied sharply after the OPEC’s cut in October, they are now back down to levels seen before the cut.
Concerns over waning demand are likely to keep crude markets muted in the near-term.