Oil Sinks as China’s Struggle With Covid Blights Demand Outlook
(Bloomberg) -- Oil sank again following the biggest weekly decline since August as China tightened anti-Covid curbs, hurting the outlook for demand.
Global benchmark Brent fell below $87 a barrel after retreating by almost 9% last week. The country saw its first Covid-related death in almost six months on Saturday and another two were reported on Sunday, sparking fears of a further wave of restrictions in the world’s biggest oil importer just as a city of 11 million near the capital asked residents to stay home amid an outbreak.
Goldman Sachs Group Inc. lowered its fourth-quarter forecast for Brent crude by $10 a barrel to $100, according to a note, with the reduction driven in part by the possibility of further anti-virus measures in China as cases climb.

Crude has erased the gains made at the start of the quarter, when the Organization of Petroleum Exporting Countries and allies including Russia agreed to reduce production by 2 million barrels a day. A looming European Union ban on Russian seaborne flows and Group of Seven price-cap plan are clouding the outlook, with officials possibly set to announce the cap’s level on Wednesday as they step up their response to Moscow’s invasion of Ukraine.
“The market is right to be anxious about forward fundamentals due to significant Covid cases in China and a lack of clarity on the implementation” of the price cap, Goldman analysts including Callum Bruce said. Still, for longer-term investors, the drop provides an opportunity to add length, they said.
The market’s weakness is reflected in rapidly softening differentials. Brent’s prompt spread -- the gap between its two nearest contracts -- was 42 cents a barrel in backwardation, down from more than $2 a barrel a month ago. The same gauge for West Texas Intermediate has flipped into contango, a bearish signal that indicates ample near-term supply.
Commodity investors also are concerned that further aggressive monetary tightening will lead to a global economic slowdown, hurting energy consumption. Traders this week will look to minutes of the most recent Federal Reserve policy meeting for more clues on the course of rate hikes.
“With record high Covid cases and falling mobility data in China, it’s hard to find a bull in the paddock,” said James Whistler, managing director of Vanir Global Markets Pte. “Oil markets just can’t shake the bear.”
Elements, Bloomberg’s daily energy and commodities newsletter, is now available. Sign up here.
More stories like this are available on bloomberg.com
©2022 Bloomberg L.P.
KEEPING THE ENERGY INDUSTRY CONNECTED
Subscribe to our newsletter and get the best of Energy Connects directly to your inbox each week.
By subscribing, you agree to the processing of your personal data by dmg events as described in the Privacy Policy.
More oil news

Stocks Slide as Tariff Angst Adds to Price Worries: Markets Wrap

China’s Oil Teapots Cut Runs to Pandemic Levels After Sanctions

China Refiners Set to Resell US Oil Cargoes After Tariff Blitz

Shell starts up new facility in UK North Sea, restoring production from the Penguins field

Oil Falls to Lowest Settlement Price of 2025 as Traders Flee

Oil Falls After Trump Delays Canada, Mexico Tariffs by a Month

Wright Confirmed to Lead Energy Agency Key to Trump’s Plans

Oil Rises as Trump Slaps Tariffs on Biggest Crude Supplier to US

UAE’s Adnoc Aims to Buy Nova Chemicals, Roll Into Deal With OMV
