A new spike in Covid infections in China threatens more downward pressure on oil prices as Chinese authorities reported a new daily record of new infections on Thursday.
China recorded nearly 32,700 new infections on Thursday, of which only about 3,000 were symptomatic, according to Reuters, but this doesn’t seem to make a difference to the country’s zero-Covid policy.
Despite the record number of infections in China, oil prices were not too bad higher in early Friday trading in Asia as the EU failed to agree on a price level for the G7/EU price cap for Russian crude oil.
News from China is likely to have a delayed effect on the price outlook due to EU cap debates; however, the impact will be decidedly negative: more cases mean more lockdowns in China, and more lockdowns mean more disruption to industrial activity and a consequent drop in demand for oil from one of the largest importers.
According to ANZ, the rise in new infections has already affected fuel demand in the country, with implied demand for oil lower than average by 1 million barrels per day at 13 million barrels per day.
“This continues to be a headwind to oil demand which, combined with the weakness of the US dollar, creates a negative backdrop for oil prices,” ANZ commodity analysts said in a note. quoted by Reuters.
Disruption in China will ripple the global economy.
Lockdowns in China are bad news for more than just oil bulls. Due to its role as a global supplier of everything from solar panels to plastic toys, any large-scale disruption to China’s economic and industrial activity means a reduction in supply of often crucial products such as the aforementioned solar panels.
In an effort to support the economy, China’s central bank on Friday cut the amount that lenders must hold in reserve by 25 basis points for the second time this year. Bloomberg reports.
By Irina Slav for Oilprice.com
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