Oil reverses gains as China battles COVID and dollar strengthens

A stronger U.S. dollar and record-high coronavirus cases in key Chinese cities, which shattered hopes of the reopening of the economy of the largest crude importer in the world, caused oil prices to give up earlier gains and fall on Monday.

Early in the session, the contracts for Brent crude and U.S. West Texas Intermediate both dipped slightly higher, but eventually turned downward.

By 0725 GMT, Brent crude futures were down 32 cents, or 0.3%, to $95.67 a barrel after ending Friday’s trading session up 1.1%, while WTI crude futures were down 39 cents, or 0.4%, to $88.57 a barrel after ending Friday’s trading session up 2.9%.

“USD strength appears to be weighing on oil and the broader commodities complex this afternoon. There probably is also an element where the market got a bit ahead of itself on Friday following an easing in China’s COVID related quarantine measures,” said Warren Patterson, head of commodities strategy at ING.

After China’s National Health Commission changed its COVID prevention and control measures to shorten quarantine periods for close contacts of patients and inbound travelers and remove a penalty on airlines for bringing in infected passengers, commodities prices increased on Friday.

However, COVID cases increased in China during the weekend, with record infections being reported on Monday in Beijing and other major cities.

Due to many refiners’ requests to lift less crude in December, China’s demand for oil from Saudi Arabia, the world’s top supplier, has also remained poor.

U.S. Treasury Secretary Janet Yellen stated on Friday that India can keep purchasing as much Russian oil as it likes, even at prices above a G7-imposed price cap mechanism, as long as it stays away from Western insurance, finance, and maritime services that are subject to the quota.

Oil was hampered by a strong dollar as a result of remarks made by Christopher Waller, the governor of the US Federal Reserve. Waller stated on Sunday that while the Federal Reserve may think about lowering the rate of rate rises at its upcoming meeting, this should not be interpreted as a “softening” of its commitment to reducing inflation.

Source: Reuters

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