As the number of COVID-19 cases in China continues to surge, concerns over a recovery in fuel demand for the world’s largest crude oil importer have caused oil prices to dip.
On Thursday, Brent futures for February fell to $83.00 per barrel, while US crude drifted to $78 per barrel.
The uncertainty surrounding the virus situation in China has led to new travel restrictions from various countries, which could negatively impact previous optimism in the market.
Analysts predict that oil prices may rebound heading into 2023, but this will depend on the pace of China’s reopening and whether market participants have accounted for growth risks in relation to tighter central bank policies. In the US, crude oil inventories fell by 1.3 million barrels in the week ending December 23, a smaller decline than expected.
In other news, Russia announced plans to ban oil sales to countries that adhere to a price cap set by the G7 on December 5, starting February 1. However, it is unclear how this ban will be implemented.
The impact of the COVID-19 situation in China can also be seen in the equity markets, as indexes closed lower on Wednesday and US Treasury yields rose as investors considered both the potential economic boost from China’s relaxed COVID-19 restrictions and the rising number of infections in the country. The yield on US 10-year Treasuries rose for the third consecutive day.