Oil falls as China COVID spike dampens demand outlook

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By Rowena Edwards

LONDON (Reuters) -Oil prices fell by over 2% on Thursday as surging COVID-19 cases in China dimmed hopes of a recovery in fuel demand for the world's largest crude oil importer.

Brent futures for February fell $1.67, or 2.01%, to $81.59 a barrel by 0953 GMT. The more active March contract fell 1.79% to $82.49/bbl.

U.S. West Texas Intermediate crude futures fell $1.62, or 2.05%, to $77.34 a barrel.

The scale of the latest Chinese COVID outbreak and doubts over official data prompted some countries to enact new travel rules on Chinese visitors, even as China began dismantling the world's strictest COVID regime of lockdowns and testing.

"The lack of clarity over the virus situation in China has prompted some new travel rules from various countries, which could serve as some dampener for previous optimism," said Jun Rong Yeap, market strategist at IG.

"Heading into 2023, there are chances for oil prices to rebound but it will still boil down to the pace of China's reopening, and whether market participants have priced for the growth risks as a trade-off to tighter central bank policies," he added.

Oil markets were also buffeted by expectations of another U.S. interest rate increase, as the Federal Reserve tries to limit price rises in a tight labour market.

{{8849|U.S. crcrude oil inventories fell less than expected, by about 1.3 million barrels, in the week ended Dec. 23, according to market sources citing American Petroleum Institute figures. [API/S]

The U.S. government will release its weekly figures at 10:30 a.m. EST (1530 GMT) on Thursday.

Markets, however, drew some support from Russian President Vladimir Putin's ban on exports of crude oil and oil products from Feb. 1 for five months to nations that abide by a Western price cap.

Germany said the ban has "no practical significance" as the country has been working since spring to replace Russian oil supplies and ensure security of supply.

Russian oil pipeline operator Transneft said Kazakhstan's KazTransOil had requested an additional 1.2 million tonnes of capacity on the Druzhba pipeline for 2023 to facilitate extra oil shipments to Germany, the RIA Novosti news agency reported.