Global Oil Market Turmoil: Factors Fueling a 4% Slide
Amidst concerns over China’s virus containment measures and a stark climate warning, oil witnessed a significant 4% decline.
In London, the price of oil experienced a notable drop of 4% on Monday, building upon the substantial losses observed last week. This downward trend was attributed to the strengthening of the U.S. dollar and apprehensions surrounding the potential impact of renewed coronavirus-related restrictions, particularly in Asia, with China at the forefront, which could potentially impede the global recovery of fuel demand.
Adding to the prevailing pessimism was a sobering report from a United Nations panel on climate change. Recent devastating events, such as wildfires ravaging homes and forests in Greece and fatal floods wreaking havoc across parts of Europe last month, underscored the urgency of the climate crisis.
Brent crude futures plummeted by $2.82, marking a 4.2% decrease to reach $67.88 per barrel by 0930 GMT, following a steep 6% decline last week, marking the most significant weekly setback in four months.
Similarly, U.S. West Texas Intermediate (WTI) crude futures saw a decline of $2.85, or 4.3%, to hit $65.43, following a nearly 7% plunge last week. On Monday, the contract dipped as low as $65.15, its lowest point since May.
Analysts, including RBC’s Gordon Ramsay and ANZ’s experts, pointed to various factors exacerbating concerns about global oil demand, notably the resurgence of the Delta variant and the imposition of new restrictions in China, the world’s second-largest oil consumer.
These restrictions encompassed a range of measures, including flight cancellations, travel advisories issued by numerous cities, and limitations on public transportation and taxi services in heavily impacted areas.
Monday saw China reporting 125 new COVID-19 cases, a notable increase from the previous day’s count of 96. Meanwhile, countries like Malaysia and Thailand witnessed record-breaking daily infection rates.
The impact of these developments was reflected in China’s export and import figures for July, which fell short of expectations due to COVID-19 outbreaks and floods.
Jeffrey Halley, senior market analyst at OANDA, highlighted the vulnerability of both benchmark crude contracts to further negative news related to the virus, particularly focusing on mainland China.
Moreover, a rally in the U.S. dollar, reaching a four-month high against the euro following Friday’s robust U.S. jobs report, exerted additional downward pressure on oil prices. The anticipation of a potentially expedited tightening of U.S. monetary policy by the Federal Reserve further compounded the situation, as a stronger U.S. dollar tends to make oil more expensive for holders of other currencies.