Oil prices fall to near two-month lows as China concerns weigh on investor sentiment

[21-11-2022 12:53 PM]

Ammon News - Oil prices fell to near two-month lows on Monday as demand concerns emanating from China, the world’s second-largest economy, continue to weigh on investor sentiment.

Brent, the benchmark for two thirds of the world’s oil, was trading 0.34 per cent lower at $87.32 a barrel at 12.27pm UAE time. West Texas Intermediate, the gauge that tracks US crude, was down 0.35 per cent at $79.80.

Swissquote Bank senior analyst Ipek Ozkardeskaya said the price of “US crude slipped below the $80 psychological level last week, below the post-pandemic ascending trend base”.

“The short-term outlook is revised from neutral to slightly negative,” she said.

China is battling a rising number of Covid-19 infections in its urban centres, raising concerns that the top crude importer will reintroduce strict containment measures and lockdowns.

The National Health Commission said on Sunday it had recorded 26,924 local infections across the nation in the previous 24 hours.

The previous week was a “bloodbath for energy bulls”, mostly due to China’s Covid situation and a softening in US economic activity, said Edward Moya, a senior market analyst at Oanda.

The Federal Reserve Bank of Philadelphia's monthly manufacturing index, a gauge of manufacturing activity in the mid-Atlantic region of the US, dropped to minus 19.4 in November, from minus 8.7 in October, its lowest reading since the early months of the pandemic.

Prices have also come under pressure amid reports of reduced demand for crude from Saudi Arabia, the largest exporter, and concerns that Russian production will not drop significantly after an EU ban on seaborne crude oil exports from the country comes into effect in December.

An additional 1.1 million barrels per day of crude and 1 million bpd of diesel, naphtha and fuel oil will have to be replaced once the EU embargo on Russian crude oil and product imports comes into effect, the International Energy Agency said in a report last week.

The Group of Seven advanced economies' proposed price cap on Russian oil exports may help to “alleviate tensions", yet myriad uncertainties and logistical challenges remain, the agency said.

Last week, Brent closed below $90 a barrel for the first time since October as the easing of geopolitical tension resulted in a sharp pull-back in prices.

Investment bank Goldman Sachs has cut its oil estimate by $10 for the fourth quarter and now forecasts Brent at $100 a barrel.

Swiss lender UBS expects the international benchmark to rebound above $100 a barrel over the coming months as US strategic petroleum reserve sales end and the EU ban on Russian crude exports comes into force.

Saudi lender Al Rajhi Capital expects oil prices to remain “stable”, supported by a “healthy” oil market balance and the decision by Opec+ to reduce its overall output by 2 million bpd.

The bank said the EU sanctions on Russian crude would “likely” offset any increases in supply from US shale producers, who have boosted drilling activity in response to higher prices.

Debt-ridden shale companies will aim to lower their “leverage positions” in the future, the bank said.

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