China's unrest in world markets limited oil's gains

 

Nationwide protests against the harsh COVID restrictions in China have added further pressure on the already stressed global crude oil market

Oil prices tumbled as unrest in China hurt risk appetite and demand outlook, adding to tensions in an already fragile global crude market.

West Texas Intermediate traded near $76 a barrel after a three-week decline. The dollar gained as shelter sought by protests against tougher anti-virus restrictions in the world's biggest crude importer. Large crowds gathered in Shanghai and demonstrations were reported in Beijing and Wuhan.

Besides China, traders were also assessing a US move to grant supermajor Chevron Corp a license to resume oil production in Venezuela after sanctions nearly halted all drilling activity three years ago. The sanctions relief comes after Norwegian mediators announced the resumption of political talks between President Nicolas Maduro and the opposition later this week.

Oil's recent leg lower is the latest turn in a tumultuous year fueled by war-induced instability in Ukraine, aggressive central bank tightening to combat inflation and China's relentless efforts to eradicate COVID-19. In recent days, EU diplomats have begun talks over a cap on Russian crude prices, with talks set to resume later on Monday.

Key market metrics are indicating weak positions, with a quick spread in Brent and WTI - the difference between the nearest two contracts - both in a bearish contango pattern. For global benchmarks, the spread in contango was 3 cents per barrel, compared to $2 in backwardation a month ago.

Since the start of the pandemic, China's approach to dealing with COVID-19 has been founded on mass testing and vaccination, as well as extensive lockdowns to suppress outbreaks. It hurt energy demand and built resentment about sanctions as other nations backed up. Despite all the rules, virus cases reached a record level this month.

In Europe, EU members have yet to come to a consensus on how strict the Group of Seven-led price cap on Russian oil should be. While Poland and the Baltic nations have objected to the proposal for a cap of $65 a barrel, making the case that it would be too generous for Moscow, shipping nations such as Greece support a higher level. Russia has said it will ban the sale of oil to anyone participating.