Oil prices tumble amid China Covid curbs, possible rate hikes

Oil prices tumble on Monday with the global fuel demand outlook overshadowed by Covid-19 restrictions in China and the potential for further interest rate hikes in the United States and Europe.

Brent crude lowered $1.28, or 1.4 percent to $91.56 a barrel by 0330 GMT, after settling 4.1 percent higher on Friday.

U.S. West Texas Intermediate crude inched down $1.34 at $85.45 a barrel, or 1.5 percent after a 3.9 percent gain in the previous session.

Prices were slightly changed last week as gains from a nominal supply cut by OPEC+, were offset by continued lockdowns in China, the world’s top crude importer.

China’s oil demand could deal for the first time in two decades this year as Beijing’s zero-Covid policy keeps people at home during holidays and diminishes fuel consumption.

“The lingering presence of headwinds from China’s renewed virus restrictions and further moderation in global economic activities could still draw some reservations over a more sustained upside,” market strategist at IG Jun Rong Yeap stated.

Yeap continued that “The overall negatives seem to outweigh the positives,” adding the $85 mark for Brent crude prices could be in sight.

In the meantime, the European Central Bank and the Federal Reserve are prepared to hike interest rates further to tackle inflation, which could lift the value of U.S. dollar against currencies and make dollar-denominated oil more expensive for investors.

“Demand concerns centered on the impact of rising interest rates to combat inflation and China’s Covid-zero policy,” Commonwealth Bank of Australia analyst Vivek Dhar wrote.