As US inflation accelerated to a 40-year high and China imposed new curbs, investors questioned the economic recovery.
Oil fell more than $2 on Monday as a spike in COVID-19 cases in Beijing sapped hopes of a recovery in Chinese demand, while concerns over further interest rate hikes for controlling runaway inflation added further pressure.
West Texas Intermediate futures fell nearly 2% to trade below $119 a barrel amid a selloff in the market.
US inflation accelerated to a new 40-year high last month, raising the likelihood of more aggressive interest rate hikes from the Federal Reserve.
China is beginning to reimpose virus curbs as cases rise, just weeks after a major easing in key cities such as Shanghai. Beijing’s most populous district, Chaoyang, has announced three rounds of mass testing to quell a “fierce” outbreak of COVID-19.
“The current price slump is exacerbated by warnings of a ‘fierce’ spread of the COVID virus in Beijing by officials, casting doubt on an immediate recovery in demand,” said Tamas Varga of oil broker PVM.
Oil surged in 2022 as Russia’s invasion of Ukraine compounded supply issues and oil demand recovered from COVID lockdowns. Brent crude hit $139, the highest since 2008, in March, and both oil benchmarks rose more than 1% in the past week. The war has stoked inflation, driving up the cost of everything from food to fuel. Retail gasoline prices in the United States have repeatedly broken records and recently hit $5 per gallon.
Supply remains tight, with OPEC and its allies unable to fully meet promised production increases due to a lack of capacity at many producers, sanctions against Russia and production in Libya cut in half. by troubles.
“Supply and demand dynamics remain supportive of prices,” said Jeffery Halley of brokerage OANDA, who considers a prolonged oil selloff unlikely “unless U.S. markets change direction. prices in the midst of a recession”.
The United States has repeatedly called on OPEC to pump more crude to help tame rising gasoline prices and the highest inflation in decades.
Stocks tumbled in Asia and posted early losses in Europe as data on Friday showing the U.S. consumer price index rose 8.6% last month continued to weigh on financial markets.
The data is alerting markets that the Federal Reserve could tighten policy for too long and cause a sharp economic slowdown. The Fed’s next policy decision will be on Wednesday.