Oil plunges over 3% as fresh COVID-19 surge hits China

Oil prices dropped on Monday amid rising concerns that new pandemic curbs in Asia, especially China, may dent the global recovery in fuel demand.

Brent crude oil, the global oil benchmark, fell by 3.86% to $67.97 a barrel by 12:35pm on Monday, while U.S. West Texas Intermediate (WTI) crude oil futures witnessed a corresponding decrease of 4.03% to $65.53 a barrel.

Reuters reports that Monday’s decline is an extension of last week’s steep losses on the back of a rising U.S. dollar and concerns that new coronavirus-related restrictions in Asia, especially China, could slow a global recovery in fuel demand.

The news agency said that a United Nations panel’s dire warning on climate change also added to the gloomy mood after fires in Greece have razed homes and forests and parts of Europe suffered deadly floods last month.

“Concerns about potential global oil demand erosion have resurfaced with the acceleration of the Delta variant infection rate,” Gordon Ramsay, Royal Bank of Canada (RBC) analyst, said in a note.

Australia and New Zealand Banking Group (ANZ) analysts pointed to new restrictions in China, the world’s second-largest oil consumer, as a major factor clouding the outlook for demand growth.

The restrictions include flight cancellations, warnings by 46 cities against travel and limits on public transport and taxi services in 144 of the worst-hit areas.

On Monday, China reported 125 new COVID-19 cases, up from 96 a day earlier. In Malaysia and Thailand, infections hit daily records.

China’s export growth slowed more than expected in July after outbreaks of COVID-19 cases and floods while import growth was also weaker than expected.

“Both (benchmark crude) contracts look vulnerable to more bad news on the virus front, focusing on mainland China,” Jeffrey Halley, OANDA senior market analyst, said in a note.

China’s crude oil imports fell in July and were down sharply from the record levels of June 2020.

A rally in the U.S. dollar to a four-month high against the euro also weighed on oil prices after Friday’s stronger than expected U.S. jobs report spurred bets that the Federal Reserve could move more quickly to tighten U.S. monetary policy.

A stronger U.S. dollar makes oil more expensive for holders of other currencies.