Oil prices drop on weak China data, COVID-19 curbs

Oil prices drop on weak China data, COVID-19 curbs

SINGAPORE -- Oil prices fell over $1 on Monday after the weaker than expected factory activity data out of China and concerns that its widening COVID 19 curbs will curtail demand.

The price of crude fell by $1.10, or 1.2 per cent, to $94.67 a barrel by 0710 GMT, after slipping 1.2 per cent on Friday.

U.S. West Texas Intermediate WTI crude was down 1.3 per cent on Friday, down $1.07, or 1.2 per cent.

Brent and WTI have been on track for their first monthly gains since May, up 7.7 per cent and 9.3 per cent respectively.

The purchasing managers' index PMI data contracting adds to the post-China congress party blues for oil markets. Stephen Innes, managing partner of SPI Asset Management, said it is not difficult to draw a straight line from weaker PMIs to China's COVID-zero policy.

So long as COVID-zero remains in place, it will continue to thwart oil bulls. A factory activity in China, the world's largest crude importer, fell unexpectedly in October, weighed down by the softening global demand and strict COVID 19 restrictions that hit production.

Chinese cities are doubling down on Beijing's zero-COVID policy as outbreaks widen, dampening earlier hopes of a rebound in demand.

Economic and business activity has been hampered by the tightened COVID 19 curbs in China, which has curtailed oil demand. China's crude oil imports fell 4.3 per cent from the same period a year ago - the first annual decline for this period since at least 2014 - as Beijing's drastic COVID 19 curbs hit fuel consumption hard.

According to CMC Markets analyst Leon Li, there is a risk to oil demand from Europe as the continent is likely to enter a recession this winter, he said.

The euro zone is likely to enter a recession in October, as rising costs of living keeps consumers cautious and saps demand, according to a survey by S&P Global.

Even though it pushes the bloc into recession and causes political resentment, European Central Bank policymakers are backing plans to keep raising interest rates.

Some of the largest U.S. oil producers on Friday indicated that productivity and volume gains in the Permian Basin are slowing down, according to some of the nation's top shale field.

The warnings came just as U.S. oil exports rose to a new record last week, pushing WTI prices up 3.4 per cent. The price of the currency went up 2.4 per cent last week, its second weekly gain in a row.

The Organization of the Petroleum Exporting Countries is expected to stick to a view of rising oil demand for another decade despite increasing use of renewable energy and electric cars, two OPEC sources said.