Oil drops more than 3% amid China protests

Prices are likely to remain highly volatile as Opec+ meets on December 4

People ride bicycles next to barricades in Shanghai on November 28, 2022, a day after protests against China's Covid-19 restrictions. AFP

Oil fell more than 3 per cent on Monday afternoon as Covid-19 protests were reported in China, the world’s second-largest economy and a top importer of crude, raising concerns about demand.

Brent, the benchmark for two thirds of the world’s oil, was trading 3.14 per cent lower at $81 per barrel at 2pm UAE time, while West Texas Intermediate, the gauge that tracks US crude, was down 3.03 per cent at $73.97 per barrel.

Protests have been reported in a number of cities in China as the government continued with its zero-Covid policy to contain the spread of the pandemic.

“The mood music remains very much bearish across the oil complex with Chinese Covid distress clouding the outlook for demand, which is accentuating the stresses in an already fragile crude market owing to recessionary angst,” Ehsan Khoman, head of emerging markets research at MUFG Bank, told The National.

Oil was also affected as the EU and the Group of Seven advanced economies (G7) mull imposing a price cap on Russian oil from December 7. The EU is reportedly discussing a cap in the range of $65 to $70 a barrel.

“Oil prices fell for a third week in a row as demand worries persist and cracks emerge in the severity of the price cap to be imposed on Russian oil,” said Edward Bell, senior director of market economics at Emirates NBD, said on Monday.

Brent futures fell 2 per cent on Friday to $83.63 per barrel, their lowest level since January this year, while WTI dropped 2 per cent to $76.28 per barrel.

“The EU extended negotiations on the oil price cap until November 28 as they failed to reach a unanimous decision among members,” Mr Bell said.

Earlier this month, Opec slightly lowered its global oil demand forecast for this year and next.

Global oil demand is predicted to increase by 2.5 million barrels per day this year, lower than Opec’s previous estimate of 2.6m bpd, the group of oil-producing countries said in its monthly oil market report on November 14. World oil demand next year will grow by 2.2 million bpd, down from an earlier estimate of 2.3 million bpd.

Opec will meet on December 4 to decide its future policy after the countries agreed to reduce its output target by 2 million barrels per day in 2023.

“Opec’s meeting remains the main anchor for oil prices this week,” said Naeem Aslam, chief market analyst at AvaTrade.

“There is no doubt that oil prices are likely to remain highly volatile as prices are likely to react to all kinds of rumours.

“So far, what is priced in the market is that Opec and its allies aren’t going to increase any production."

“However, any policy, which deviates from this could make the price swing by a significant margin, depending on the intensity of the actual outcome or a rumour.”