Crude Oil Slumps to Two-Week Lows; China COVID Worries Weigh

© Reuters.

By Peter Nurse

AiVIF.com -- Oil prices slipped lower Thursday, falling to the lowest level in two weeks on continued concerns of slowing global growth as well as renewed COVID-19 restrictions in China.

By 09:35 ET (13:35 GMT), U.S. crude futures traded 2.4% lower at $87.38 a barrel, while the Brent contract fell 2.2% to $93.50.

U.S. Gasoline RBOB Futures were down 1% at $2.4078 a gallon.

Economic data of late has tended to point to slowing global growth, likely weighing on the demand for crude as activity weakens.

Manufacturing activity across the Eurozone declined again last month, and while the labor market in the U.S. appears to be holding up, with data showing Thursday that the number of Americans filing for unemployment insurance unexpectedly dropping last week, the country still entered a technical recession last month.

In China, the largest importer of crude in the world, the Caixin manufacturing PMI, a gauge of private-sector manufacturing activity, fell back into contraction territory last month.

At the same time, the Chinese city of Chengdu – capital of Sichuan province and home to 21 million people – went into lockdown, as the country’s authorities continued their COVID Zero policy.

While Chengdu is not as economically important as Shanghai, which was shut down earlier in the year, it’s nonetheless still an important industrial center. Volvo Cars (ST:VOLCARb) said its plant there will shut down temporarily, and others are likely to follow.

Added to this, interest rates are set to rise further in Europe and the U.S. as central banks attempt to rein in soaring inflation, at the likely cost of further economic growth.

Turning to supply, the likelihood of the United States agreeing to the lifting of sanctions on Iranian crude exports with the re-signing of the Iran Nuclear Deal appears to be rising.

Washington was engaged in talks with Israel over the deal, which Jerusalem is strongly opposed to, on Wednesday, discussions which wouldn’t be needed if the U.S. administration was opposed to a deal.

“There was a report/rumor that the U.S. and Iran have reached an agreement on the nuclear deal, which would be announced in the next 2 to 3 weeks,” said analysts at ING, in a note. “ The report cites a former IAEA official. However, with no corroboration elsewhere, we are currently viewing this report as no more than a rumor.”

Next week sees the latest meeting of the Organization of Petroleum Exporting Countries and its allies to discuss production levels.

Saudi Arabia, the de facto leader of the group, floated the option of a production cut last week, saying the futures and physical markets had become disconnected, but the members are still widely expected to keep output steady with prices still not far from the $100 a barrel level.