Oil Prices Fall Due to China Covid Curbs, High Inflation Concerns

Oil Prices Fall Due to China Covid Curbs, High Inflation Concerns

/ Financial News / Thursday, 01 September 2022 13:12

Oil prices continued to fall as a result of the new COVID-19 lockdown measures in China, coupled with concerns of high inflation and interest hikes by the US Federal Reserve and the ECB. The International Monetary Fund (IMF) has projected global GDP growth to slow from 6.1% in 2021 to 3.2% in 2022 and 2.9% in 2023.

As of this writing, US West Texas Intermediate (WTI) crude stood at $87.57 a barrel while Brent crude was at $93.45 per barrel.

Oil prices have remained volatile since the Russia-Ukraine war that started in February this year. OPEC has revised down world economic growth to stand at 3.1% for 2022 and 2023 as a result of weaker Q2- 22 growth in the major economies and an observed soft trend in some key economies.

China’s implementation of the zero-COVID strategy kept factory production down in August, along with unprecedented heatwaves and a chaotic property sector, weighing on economic growth.

As far as bullish indications are concerned, American Petroleum Institute (API) data showed crude stocks rose by about 593,000 barrels, against analysts' estimates of a drop of around 1.5 million barrels.

Additionally, the statement by OPEC+ leader Saudi Arabia to cut production to stabilize the volatility in the oil market has also supported the oil price.

The OPEC+ Joint Technical Committee (JTC) expects a 2023 oil market deficit of 300,000 barrels per day (bpd) under its base case, according to documents seen by Reuters.

The JTC, which met on Wednesday, expects demand to lag supply by 400,000 bpd this year, a downward revision of 500,000 bpd after new production assumptions were taken into account. OPEC+ will meet on September  5.

Meanwhile, Russia’s Gazprom has halted natural gas flows through Europe's key supply route, sending energy prices soaring. The G7 leaders will meet on Friday to propose a price cap on Russian oil.

Also read: GCC Likely to Make $1.3 Trillion in Oil Revenue by 2026, Says IMF

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