Oil prices slide as dollar strengthens, China COVID-19 woes dampen demand

SINGAPORE – Oil prices fell on Tuesday, extending nearly 2 percent losses in the previous session, as a stronger U.S. dollar and a flare-up in COVID-19 cases in China increased fears of slowing global demand.

Brent crude futures fell 57 cents, or 0.6 percent, to $95.62 a barrel by 0031 GMT, after falling $1.73 in the previous session.

U.S. West Texas Intermediate crude was at $90.58 a barrel, down 55 cents, or 0.6 percent, after losing $1.51 in the previous session.

The U.S. dollar rose for a fourth straight session on Monday as investors braced for high inflation data released this week, leading to expectations of continued aggressive monetary policy from the Federal Reserve.

A strong greenback reduces demand for oil by making it more expensive for buyers using other currencies.

Rate increases to date were starting to slow the economy and the full brunt of tighter policy would not be felt for months to come, Fed Vice Chair Lael Brainard said on Monday.

“Strong jobs data has strengthened expectations of another 75 basis points rate hike at next month’s Fed meeting, leaving downside risk for global oil demand,” said ANZ Research analysts in a note.

The sustained zero COVID-19 policy in China ahead of a Communist Party congress is “not helping” demand, the analysts added.

COVID-19 cases in the world’s second-largest oil consumer rose to their highest since August. Its services activity in September contracted for the first time in four months, as pandemic restrictions weighed.

Thousands of cases caused by the highly transmissible Omicron sub-variants BF.7 have been reported in Inner Mongolia since the start of October, turning the region into the country’s latest COVID epicentre.

Capping losses, the Organization of the Petroleum Exporting Countries and allies including Russia, together known as OPEC+, decided last week to lower their output target by 2 million barrels per day, further raising concerns about tightening oil supplies.

“The supply issues remain due to sanctions on Russia, especially when the EU bans imports of Russia’s oil towards the year-end,” said CMC Markets analyst Tina Teng.

EU sanctions on Russian crude and oil products will take effect in December and February respectively while the bloc last week gave its final approval for a new batch of sanctions against Russia including a price cap on Russian oil exports.

India maintains a “healthy dialogue” with Russia and will look at what is offered following an announced ownership revamp to the Sakhalin-1 oil and gas project, Petroleum Minister Hardeep Singh Puri told Reuters.

On Friday, Russia issued a decree allowing it to seize Exxon Mobil’s 30 percent stake and gave a Russian state-run company the authority to decide whether foreign shareholders including India’s ONGC Videsh can retain their participation in the project.