Oil down on Chinese Covid-19 spike

Oil was down Friday morning in Asia, continuing a retreat from the previous week’s 11-month highs, over new Covid-19-induced restrictive measures in China and the ensuing fuel demand worries.

Brent oil futures slumped 1.21% to $55.42 by 10:36 PM ET (3:36 AM GMT) and WTI futures slid 1.32% to $52.43. Both Brent and WTI futures remained above the $50 mark, however.

Recovering fuel demand in the world’s biggest oil importer had support the black liquid’s gain in late 2020, making up for the lagging demand in the US and Europe. However, a new wave of Covid-19 cases in the country has seen the reintroduction of restrictive measures to contain the spread of the virus.

“Indeed, investors are struggling to see through short-term pain for long-term gain heading into the weekend as Covid-19 case counts in China are the most significant demand concern for traders,” Axi chief market strategist Stephen Innes said in a note.

Shanghai reported the first locally transmitted cases in two months on Thursday, and the special administrative region of Hong Kong will reportedly begin its first ever lockdown this weekend in the city’s Yau Tsim Mong district.

Other areas are adopting pre-emptive curbs and in Beijing, residents are being urged not to travel for the upcoming Lunar New Year holiday, when tens of millions of urban workers usually head back to their villages.

Sudden new restrictions globally have badly hit the airline industry, with the number of flights globally down 25% during the previous week, ANZ Research analysts said in a note.

“This is likely to weigh heavily on jet fuel demand,” the note warned.

US crude oil supply data from the US Energy Information Administration is due later in the day. The data was delayed by both a holiday and Wednesday’s inauguration of President Joe Biden.

First published on Investing.com