Investing
Oil falls on Beijing’s COVID-19 warning, inflation worries
Global Banking & Finance Review®
Company
By Stephanie Kelly
NEW YORK (Reuters) -Oil prices sank more than 2% on Monday, as a flare-up in COVID-19 cases in Beijing and worries about more interest rate hikes raised concerns about the demand outlook.
Brent crude fell $2.54, or 2.1%, to $119.47 a barrel at 11:05 a.m. EDT (1505 GMT). U.S. West Texas Intermediate crude fell $2.68, or 2.2%, to $117.99 a barrel.
Beijing’s most populous district Chaoyang announced three rounds of mass testing to quell a “ferocious” COVID-19 outbreak that emerged last week.
“We don’t know what’s going to happen with China. The mood is dour right now,” said Phil Flynn, analyst at Price Futures.
Concern about further rate hikes, heightened by Friday’s U.S. inflation data showing the consumer price index rose 8.6% last month, also pressured oil lower. [MKTS/GLOB]
Other financial markets fell too, as investors worried the Federal Reserve may tighten policy too aggressively and cause a sharp slowdown. The S&P 500 was on track to confirm a bear market. The next Fed policy decision is on Wednesday.
Oil has surged in 2022 as Russia’s invasion of Ukraine compounded supply concerns and as oil demand recovered from COVID lockdowns. In March Brent hit $139, the highest since 2008. Last week, both oil benchmarks rose more than 1%.
On Saturday, the average price of U.S. gasoline exceeded $5 a gallon for the first time, data from the AAA showed.
Oil supplies remain tight, with OPEC and its allies unable to fully deliver on pledged output increases because of a lack of capacity in many producers, sanctions on Russia, and output in Libya roughly halved by unrest.
“The supply/demand dynamics remain supportive of prices,” said Jeffery Halley of brokerage OANDA, who sees an extended oil sell-off as unlikely “unless U.S. markets move to price in a full-blown recession” and there are new lockdowns in China.
(Reporting by Stephanie Kelly; additional reporting by Alex Lawler, Florence Tan and Mohi Narayan; Editing by Kirsten Donovan Editing by Bernadette Baum and David Gregorio)
Inflation is the rate at which the general level of prices for goods and services rises, eroding purchasing power. It is typically measured by the Consumer Price Index (CPI) or Producer Price Index (PPI).
Brent crude is a major trading classification of crude oil originating from the North Sea. It serves as a global benchmark for oil prices and is used to price two-thirds of the world's oil.
West Texas Intermediate (WTI) is a grade of crude oil used as a benchmark in oil pricing. It is sourced from the U.S. and is known for its light and sweet characteristics.
Interest rates are the amount charged by lenders to borrowers for the use of money, expressed as a percentage of the principal. They can influence economic activity and inflation.
A bear market is a period in which prices in a financial market fall by 20% or more from recent highs, often driven by widespread pessimism and negative investor sentiment.
Explore more articles in the Investing category
