Oil Prices drop 2% in light Trading on China Demand Concern

(CTN News) – Oil prices fell on Wednesday as traders balanced the likelihood that loosening pandemic restrictions in China, the world’s largest oil importer, would increase gasoline consumption against worries over a rise in COVID-19 cases.

The price of Brent oil futures dropped $1.07, or 1.3%, to end at $83.26 a barrel, while the price of U.S. West Texas Intermediate crude futures dropped 57 cents, or 0.7%, to settle at $78.96 per barrel.

A significant step toward easing strict border controls, China has announced that starting on January 8, it would no longer need entering travelers to undergo quarantine. However, a rise in COVID infections has burdened Chinese hospitals tremendously.

As the U.S. Federal Reserve works to contain price increases in a tight labor market, fears of a further interest rate hike in the United States roiled the oil markets.

As the end of the year draws near, market participants highlighted that trade volume this week is anticipated to be lower than normal, increasing the volatility of oil prices.

In a market with little liquidity, “my feeling is that the broader risk-off mentality has impacted the oil prices,” said UBS analyst Giovanni Staunovo.

The falls for Wednesday also came after settlements on both crude benchmarks rose for three consecutive days.

Tuesday saw prices reach their highest level three weeks after key production facilities and refineries were forced to shut down over the weekend due to the U.S.’s widespread cold snap.

Craig Erlam, a senior market analyst at OANDA, said: “We have seen a significant bounce over the previous several weeks, and that’s being shaved down a bit today, but the story remains intact.”

The reopening of China decreased Russian output, and more OPEC+ production cutbacks are all expected to significantly impact price volatility and uncertainty in the next year, according to Erlam.

The G7 price ceiling was announced on December 5, and Russia indicated it intends to stop selling oil to nations who adhere to it as of February 1. However, it was unclear exactly how the restriction would operate.

According to market sources quoting American Petroleum Institute data on Wednesday, gasoline and distillate supplies increased last week, but U.S. crude oil prices inventories unexpectedly decreased.

At 10:30 a.m. Eastern Time on Thursday, the U.S. government will release its weekly inventory data.

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