©Portal.
By Barani Krishnan
Investing.com – If Vladimir Putin and OPEC are the oil bulls’ best friends, rest assured that China and the Federal Reserve are behind the bears.
In a way that has become quite predictable these days, China’s Covid bogeyman emerges after crude oil prices tacked on double-digit gains to herald fresh social restrictions at the world’s largest oil importer.
That was the case on Tuesday, when Shanghai and other major Chinese cities including Shenzhen stepped up testing as coronavirus infections rose, and some local authorities hastily closed schools, entertainment venues and tourist spots.
The result: Crude oil prices are down 3% since the start of this week, after rising 17% last week.
Prices traded in New York were down $1.78, or 2%, to $89.35, extending Monday’s 1.6% drop. The U.S. crude oil benchmark was up 17% through last week and has had a strong start to October, after falling 12.5% in September and losing 24% in the third quarter.
ended Tuesday’s session down $1.90, or 2%, at $94.29 a barrel after falling 1.8% in the previous session. Brent rose 11% last week, recouping all of September’s loss and partially recovering from its 22% loss in the third quarter.
China’s Covid cases have risen to their highest level since August, with the surge coming after increased domestic travel during the National Day’s “Golden Week” earlier this month, Portal reported, as authorities reported 2,089 new local infections for October 10 alone. most since August 20th.
Shanghai, a city of 25 million people, said it had 28 local cases as of Oct. 10, the fourth day of double-digit increases. It will conduct mass testing at least twice a week through November 10, an increase from once a week, to avoid a repeat of its economically and psychologically scarring April-May lockdown.
While Chinese authorities often have statistics to justify the new caps and lockdowns, the widespread sentiment among those on the risk side of markets, particularly in oil, is that the biggest oil importer would have much to gain by keeping crude prices low .
“From an economic perspective, it seems like China is throwing the baby out with the bathwater by continuing to confine its population to petty cases,” said John Kilduff, a partner at New York energy hedge fund Again Capital.
China’s oil import figures, released on Monday, also did not help restart last week’s rally.
This week’s plunge in oil prices was also due to fresh shocks brought to market by Fed policymakers.
Cleveland Fed President Loretta Mester warned Tuesday that a possible shock could plunge the US economy into recession.
Their caution followed Monday’s stance by Fed Vice Chair Lael Brainard that US monetary policy needed to be tight in the short term as policy tightening would take time to produce anti-inflation results.
“I see a limited recovery in GDP in the second half, with GDP growth flat this year,” said Brainard, who appeared on a live-streamed discussion on the economy.
World Bank President David Malpass and International Monetary Fund Managing Director Kristalina Georgieva underscored markets’ caution on Monday as they warned of a growing risk of a global recession and said inflation remained an ongoing problem.
Market participants were also keeping an eye out for weekly US oil inventory data, due after market settlement from either API or the American Petroleum Institute.
The API will release a snapshot of closing balances for US crude oil, gasoline and distillates for the week ended October 7th at approximately 4:30 pm ET (20:30 GMT). The numbers serve as a precursor to official inventory data of the same due Wednesday from the US Energy Information Administration.
For the last week, analysts tracked by Investing.com expect the EIA to report an increase of 1.75 million barrels versus the 1.36 million barrel decline reported in the week ended September 30th.
On the front, consensus is down 1.825 million barrels from the previous week’s 4.728 million barrel decline.
It is expected to decline by 2.05 million barrels from last week’s deficit of 3.44 million.