Tuesday saw a slight increase in oil prices as the dollar dropped, but concerns about the world economy and China’s growing COVID-19 case load dampening demand from the world’s largest crude oil importer weighed on sentiment.
By 0513 GMT, Brent crude futures had risen 44 cents, or 0.5%, to $87.89. Tuesday marked the start of trading for January West Texas Intermediate (WTI) crude futures, which saw a 30 cent increase or 0.4% to $80.34 per barrel, according to Reuters.
The Organization of the Petroleum Exporting Countries and its Allies (OPEC+) recently reduced their production goals, and this month Saudi Arabia, the de facto leader, announced that due to the unpredictability of the world economy, the group will continue to be cautious in its oil production.
After Monday’s recovery, the U.S. dollar’s decline was the primary driver of oil prices, according to CMC Markets analyst Tina Teng. Oil becomes more affordable for owners of other currencies due to a weaker dollar.
Stephen Innes, managing partner at SPI Asset Management, wrote in a note that worries about oil demand in the context of the U.S. Federal Reserve’s interest rate tightening and China’s strict COVID lockdown policies outweigh potential positive price drivers like a European Union embargo on Russian oil set to begin on December 5.
However, in the interim, worries about China’s economy have increased due to a recent nationwide spike in COVID cases.
On Tuesday, Beijing closed its parks and museums, and mass testing had resumed in additional Chinese cities. The Chinese capital issued a warning on Monday, tightening entry regulations as the country faces its most challenging pandemic test to date.
According to a preliminary Reuters poll released on Monday, crude oil stocks in the US were predicted to have decreased by about 2.2 million barrels in the week leading up to November 18.
While WTI flipped into contango last week, the front-month Brent crude futures spread sharply shrunk, suggesting supply concerns may be subsiding.
