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Oil prices ease to near 2-month lows on China demand fears, dollar strength

Brent, WTI contracts earlier fell by around $1 a barrel; Beijing districts close schools as China’s Covid cases rise; Higher dollar weighs on prices

Oil prices slipped to trade near two-month lows on Monday, having earlier slid by around $1 a barrel, as supply fears receded while concerns over fuel demand from China and US dollar strength weighed on prices.

Brent crude futures for January had slipped 52 cents, or 0.6 per cent, to $87.10 a barrel by 1326GMT.

US West Texas Intermediate (WTI) crude futures for December were at $79.40 a barrel, down 68 cents or 0.9 per cent, ahead of the contract’s expiry later on Monday. The more active January contract was down 43 cents or 0.5 per cent to $79.68 a barrel.

Both benchmarks closed Friday at their lowest since September 27, extending losses for a second week, with Brent down nine per cent and WTI 10 per cent lower.

“Apart from the weakened demand outlook due to China’s Covid curbs, a rebound in the U.S. dollar today is also a bearish factor for oil prices,” said CMC Markets analyst Tina Teng.

“Risk sentiment becomes fragile as all the recent major countries’ economic data point to a recessionary scenario, especially in the UK and euro zone,” she said, adding that hawkish comments from the US Federal Reserve last week also sparked concerns over the US economic outlook.

New Covid case numbers in China remained close to April peaks as the country battles outbreaks nationwide and in major cities. Schools in some districts in the capital Beijing switched to online classes on Monday after officials asked residents to stay home, while the southern city of Guangzhou ordered a five-day lockdown for its most populous district.

“The prospect of more restrictions and therefore lower demand in China has weighed on crude prices recently,” said Craig Erlam, senior market analyst at OANDA.

“We’re seeing bleak economic prospects all around the globe which continues to weigh on oil prices and if interest rates keep rising as they are, expectations will likely deteriorate further.”

The front-month Brent crude futures spread narrowed sharply last week while WTI flipped into contango, reflecting dwindling supply concerns.

Meanwhile expectations of further interest rate rises elsewhere have elevated the greenback, making dollar-denominated commodities more expensive for investors. — Reuters