Oil prices fell about 2% on Friday as China widened its coronavirus lockdowns and travel restrictions, significantly reducing its import demand.
PVM Oil analyst Stephen Brennock said Reuters that “uncertainty over its zero Covid policy” would keep Chinese oil demand low for the foreseeable future. Chinese analysts, on the other hand, have insisted that a dramatic “economic recovery” is imminent thanks to upcoming “stimulus” policies.
Much of this uncertainty is due to residents of Chinese cities, including major manufacturing centers like Guangzhou, never really knowing when a supposedly tiny number of coronavirus infections will cause complexes, neighborhoods or the entire city to be locked down without notice.
The Chinese Communist Party ostensibly voiced support for “zero-Covid” lockdowns during its national party congress last week, signaling in a variety of explicit and subtle ways that the policy should be seen as beyond reproach and is not going away.
Oil drops as China expands COVID restrictions; still set for weekly gain https://t.co/3lQL6SLlDu
– Reuters Energy and Commodities (@ReutersCommods) October 28, 2022
“Brent crude futures fell $1.70, or 1.8%, to $95.26 a barrel at 11:18 a.m. EDT (1518 GMT), while U.S. West Texas Intermediate (WTI) crude fell down $1.64, or 1.8%, to $87.44. This put Brent on track to rise around 2% for the week and WTI around 3%,” Reuters reported.
Data published this week showed China’s crude oil imports for September were down 2% year-on-year, while exports of excess fuel hit their highest level since June 2021.
MarketWatch Friday specifically cited the Guangzhou lockdown as a “major drag on oil prices.”
Oil slips as China expands COVID restrictions, but on track for weekly gains https://t.co/LW066NIsYg
— MarketWatch (@MarketWatch) October 28, 2022
The drag from Chinese lockdowns was collectively large enough to offset rising US export demand and possible news Federal Reserve that interest rates would stop rising.
Chinese buyers have fallen behind shopping spree on Thursday, buying about 10 million barrels from Africa, Brazil and the Middle East in a bid to build up stocks.
The rise in diesel futures prices gave the oil market a little support, but that was not much cause for celebration since these prices are increasing because the United States is run out of diesel. Current U.S. diesel stocks are only enough to meet 27 days of demand, a seasonal low not seen since 1945.
Diesel prices at the pump are now $1.45 a gallon higher than gasoline, the highest difference between the two fuels on record, and price spikes are expected throughout the year , which could lead to supply chain problems and further aggravate consumer price inflation. since diesel fuel is commonly used for freight transportation.