Oil falls on Beijing’s warning about COVID-19, a concern over inflation

By Alex Lawler

LONDON (Reuters) – Oil fell about $ 2 a barrel on Monday as a rise in COVID-19 cases in Beijing dampened hopes for a rise in Chinese demand, while worries about further rises of interest rates to control rampant inflation added more pressure.

Beijing’s most populous district, Chaoyang, announced three rounds of mass testing to quell a “ferocious” outbreak of COVID-19 that erupted last week. Mass tests would take place until Wednesday.

fell $ 1.86, or 1.5%, to $ 120.15 at 0907 GMT, while US crude West Texas Intermediate fell $ 2.15, or 1.8%, to $ 118.52.

“The current fall in prices is exacerbated by warnings of a ‘fierce’ spread of the COVID virus in Beijing by officials, which call into question the immediate recovery in demand,” said Tamas Varga, of the brokerage. PVM oils.

Concern over further rate hikes, boosted by US inflation data on Friday showing that the US consumer price index rose 8.6% last month, also pushed oil down and affected the financial markets. [MKTS/GLOB]

The data warns the markets that the Federal Reserve may tighten policy for too long and cause a sharp slowdown. The Fed’s next policy decision will be on Wednesday.

Oil has risen in 2022 as the Russian invasion of Ukraine has exacerbated supply concerns and oil demand has recovered from COVID blockades. Brent hit $ 139, the highest since March 2008, and the two oil benchmarks rose more than 1% last week.

Supply remains tight, with OPEC and its allies unable to achieve the promised production increases due to the lack of capacity of many producers, sanctions on Russia and production in Libya about half due to the riots.

“Supply / demand dynamics continue to support prices,” said Jeffery Halley of OANDA Brokerage, who considers a prolonged sale of oil unlikely “unless US markets move into price in a recession. total “and there are new blockades in China. .