Oil drops as China COVID-19 cases trigger repression measures

LONDON (Reuters) – Oil prices fell Friday, retreating further from The highs of the past 11 months hit last week, weighed down by concerns that the new pandemic restrictions in China will reduce the demand for fuel in the world’s largest oil importer.

Brent crude oil futures fell 73 cents, or 1.3%, to $ 55.37 a barrel by 1501 GMT, after a 2 cent gain on Thursday.

US West Texas Intermediate (WTI) crude oil futures fell $ 82 cents, or 1.5%, to $ 52.31, a day after falling 18 cents.

China’s recovery in fuel demand supported market gains late last year, while the US and Europe lagged behind, but this source of support is fading as a new wave of COVID-19 cases has triggered new restrictions.

“The pandemic appears to continue to expand in a second wave in China, with infections increasing by the day and reaching different regions such as Shanghai again,” said Rystad Energy oil market analyst Louise Dickson.

“An increase in the number of Chinese infections is of particular concern … because China is among the largest oil consumers in the world and the market that has helped oil prices the most to recover,” he added.

The market is awaiting official data on the oil inventory from the US Energy Information Administration (EIA) on Friday, after Wednesday’s industry data showed a surprise 2.6 million barrel increase in U.S. crude oil inventories last week compared to analysts’ forecasts for a pickup of 1.2 million barrels. [API/S]

The report will be released at 11:00 EST (1600 GMT).

“Global oil demand could decline marginally in the first quarter of 2021 as many regions, including many European countries, have reintroduced mobility restrictions,” analysts from Fitch Ratings said in a statement.

“The positive effects of vaccination programs on the resumption of oil demand may not be visible for several months until a critical mass of the population is inoculated.”

(The story is trimmed to correct typos in the title).

Reportage by Noah Browning in London, Sonali Paul in Melbourne and Koustav Samanta in Singapore; Editing by Jason Neely, Jan Harvey and Louise Heavens