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Despite China’s COVID Restrictions and Potential Rate Increases, Oil Prices Are Down

Oil prices went down on Monday as the global fuel demand forecast was clouded by COVID-19 curbs in China and the likelihood for future interest rate rises in the United States and Europe. This caused the global fuel demand outlook to weigh on oil prices.

Brent oil futures fell by $1.01, or 1.1%, to $91.83 a barrel as of 06:30 GMT on Monday, after finishing the previous trading day 4.1% higher. Following a rise of 3.9% in the previous session, the price of U.S. West Texas Intermediate oil fell $1.13 to $85.66 per barrel, or a loss of 1.3%.

The gains from a nominal supply cut by the Organization of the Petroleum Exporting Countries (OPEC) and allies including Russia, a group known as OPEC+, were offset by ongoing lockdowns in China, which is the top crude importer in the world. As a result, prices were relatively unchanged from the previous week.

As a result of Beijing’s zero-COVID policy, individuals in China are more likely to stay at home over the holidays, which results in lower gasoline consumption. This year might be the first time in 20 years that China’s oil demand decreases.

According to Jun Rong Yeap, a market analyst at IG, “the persistent existence of headwinds from China’s strengthened viral restrictions and further slowing in global economic activity might still attract some worries about a more prolonged gain.”

Yeap said that “the overall negatives appear to outweigh the benefits,” adding that the $85 level for pricing of Brent oil might be in sight. “The overall negatives seem to outweigh the advantages,”

In the meantime, both the European Central Bank and the Federal Reserve are planning to raise interest rates even further in an effort to combat inflation. This move could boost the value of the United States dollar in comparison to other currencies and cause investors to pay a higher price for oil priced in dollars.

According to a report sent by an analyst from the Commonwealth Bank of Australia named Vivek Dhar, “Demand worries centred on the effect of increasing interest rates to fight inflation and China’s COVID-zero policy.”

Nevertheless, there is a chance that oil prices may rise again before the end of the year. Supply is anticipated to become much more constrained once the European Union places an embargo on oil imports from Russia on December 5.

Following Russia’s invasion of Ukraine in February, the Group of Seven (G7) has decided to establish a price ceiling on Russian oil in order to reduce Russia’s lucrative oil export earnings. In addition, the G7 wants to take steps to guarantee that rising countries would still be able to get oil. The activities that Moscow is doing in Ukraine are being referred to as a “special operation.”