Oil futures fell sharply early Tuesday, with the U.S. benchmark slipping back below $100 a barrel, hampered by a strong dollar and continued worries over COVID-19 restrictions in China.
West Texas Intermediate crude for August delivery
fell $4.80, or 4.6%, to $99.29 a barrel on the New York Mercantile Exchange.
September Brent crude
the global benchmark, dropped $4.80, or 4.5%, to $102.30 a barrel on ICE Futures Europe.
Back on Nymex, August gasoline
fell 5% to $3.2923 a gallon, while August heating oil
lost 2.6% to $3.6706 a gallon.
August natural-gas futures
rose 3.4% to $6.643 per million British thermal units.
Fears of a recession were weighing on stocks and commodities early Tuesday, analysts said. Rising COVID-19 cases in Shanghai were also seen putting pressure on crude, stirring fears of renewed lockdown.
“Recently, Chinese President Xi Jinping had firmly rejected any departure from the country’s strict zero-Covid strategy,” said Carsten Fritsch, commodity analyst at Commerzbank, in a note.
“This means downside risks to oil demand in China because renewed restrictions on mobility can be expected time and again, depending on case numbers. In the West, the combination of high energy prices and rising interest rates is fueling concerns about a recession that would have a serious impact on oil demand,” he said.
A surging dollar, with the euro
slumping toward parity with the U.S. currency, is seen as a headwind for commodities prices in the unit, making them more expensive to users of other currencies.
On Tuesday, the Organization of the Petroleum Exporting Countries left its forecast for growth in world oil demand unchanged at 3.4 million barrels a day (mb/d) in 2022, with total demand projected to average 100.3 mb/d. In its monthly report, OPEC said world oil-demand growth is expected to slow to 2.7 mb/d next year to average 103 mb/d, “supported by a still solid economic performance in major consuming countries, as well as improved geopolitical developments and containment of COVID-19 in China.”
President Joe Biden is due to visit Saudi Arabia at the end of the week. Analysts said the Saudis might be prepared to loosen the taps somewhat, but were skeptical the visit would produce a significant shift in the supply outlook.