Oil prices down over 1% on concerns over recession and China’s COVID restrictions

Prices of the black liquid are down by over 1% at the start of the London session on Tuesday, as concerns over a possible recession and China’s COVID-19 curbs outweighed an expectation of tight global supply and a pick-up in fuel demand with the U.S. summer driving season.

The global benchmark, the Brent crude futures, is down 1.25%, currently trading $109.50 a barrel. The U.S. benchmark, the West Texas Intermediate (WTI) crude futures is also down 1.17%, currently trading $108.96 a barrel. Brent gained 0.7% on Monday while WTI settled nearly flat.

Investors continued to be concerned about a possible recession. Some of the world’s well-heeled flagged the risk of a worldwide recession at the annual Davos economic summit which began on Sunday, May 22. Also weighing on the market is China’s COVID-19 restrictions.

What you should know

  • Multiple threats to the global economy topped the worries of the world’s well-heeled at the annual Davos economic summit, with some flagging the risk of a worldwide recession.
  • However, International Monetary Fund Managing Director Kristalina Georgieva said she did not expect a recession for major economies but could not rule one out.
  • While Shanghai, China’s commercial hub, aims to normalize life from June 1 as its coronavirus caseloads decline, an increase in new COVID-19 cases in Beijing has raised concerns for further curbs.
  • The Chinese capital detected 99 new cases on Sunday, up from 61 the previous day – the largest daily tally so far during a month-old outbreak that has consistently seen dozens of new infections every day.
  • The United States is set to enter its peak driving season beginning on Memorial Day weekend at the end of this week. This indicates that the demand for oil is set to increase.
  • Toshitaka Tazawa, an analyst at Fujitomi Securities Co Ltd explained, “investors were selling off as they expected higher oil prices to dent consumption for fuels worldwide.”
  • Tina Teng, an analyst at CMC Markets stated, “China’s COVID lockdowns are certainly playing a substantial role that weighs on fuel and energy demand outlook, with Beijing reporting rising positive cases, making investors concerned about expanding lockdowns into another business hub apart from Shanghai.”

An embargo on Russian oil imports will likely be agreed on by the European Union “within days,” according to its biggest member Germany, as Moscow said it saw its economic ties growing with China after being isolated by the West over its invasion of Ukraine.

The world is facing an oil supply crunch, with most companies afraid to invest in the sector as they face green energy pressures, the head of Saudi Aramco told Reuters, adding it cannot expand production capacity any faster than promised.

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