SINGAPORE Oil prices fell on Friday but remained within a three-month high because fears over new COVID 19 lockdown measures in Shanghai outweighed solid demand for fuels in the United States, the world's top consumer.
The price of crude oil was down 33 cents, or 0.3 per cent, at $122.74 a barrel at 0647 GMT, after dropping to as low as $121.60 earlier in the session and declining 0.4 per cent on the previous day.
The U.S. West Texas Intermediate crude fell 29 cents, or 0.2 per cent, to $121.22 a barrel, having dropped 0.5 per cent on Thursday.
Brent was on track for a fourth consecutive week gain and WTI was set for a seventh weekly increase, with prices rallying in the past two months. Both benchmarks on Wednesday had their highest closes since March 8, when they reached 14 year peaks.
Jeffrey Halley, senior market analyst at OANDA, said that oil has been retreating in Asia due to China's slowdown of COVID mass testing for Shanghai this weekend.
The physical tightness of crude and refined products in the world is a strong support factor for any losses. On Thursday, the Shanghai and Beijing went back on a new COVID alert. Parts of Shanghai imposed new lockdown restrictions and the city announced a round of mass testing for millions of residents.
We were just beginning to get optimistic about Chinese demand with lifting restrictions in Shanghai and Beijing, and the latest move to lock down certain regions in Shanghai for mass testing is a reminder that there is no change in China's COVID policy, said Madhavi Mehta, commodity research analyst at Kotak Securities.
Economic activity may be impacted if restrictions are used to limit spread. China's crude oil imports were up almost 12 per cent compared to a year ago, when they were low. Fuel demand was weighed down last month by the slowing economy and COVID 19 lockdowns, and refiners were still battling high inventories.
The summer driving season in the US is seeing record surges in gasoline and diesel consumption, but similar surges in pump prices, next to low stocks, point to a market vulnerable to supply disruption and concerns about a steep drop-off in demand once peak demand season fades, analysts at Fitch Solutions said in a note.
The United States and other countries have been involved in a series of releases of strategic reserves, but these have had limited effect, with global crude supply rising very slowly.