Oil Drops Below $70 as China Faces New COVID-19 Outbreak

By Adedapo Adesanya

The price of crude oil dropped below $70 per barrel on Monday as the international oil market got a shock after the world’s top crude importer, China, imposed more travel restrictions to fight what it sees as the worst outbreak since the original viral outbreak in Wuhan.

As a result, the Brent crude traded at $69.24 per barrel after losing $1.41 or 1.99 per cent, while the United States West Texas Intermediate (WTI) recorded a $1.44 or 2.11 per cent loss to trade at $66.64 per barrel.

China reported 125 new COVID-19 cases on Monday, up from 96 a day earlier and has started testing millions of people. It has suspended airline and long-haul bus trips from cities with reported COVID cases in an attempt to eradicate early the Delta variant outbreak in the country.

The capital Beijing is also tightening travel restrictions, adding to the already growing concerns about fuel demand in the top oil importer in the world.

This is coming at a time when data has shown a decline in economic data. The Asian giant’s export growth slowed more than expected in July after outbreaks of COVID-19 cases and floods, while import growth was also weaker than expected.

This is further dampened as China’s crude oil imports fell in July and were down sharply from the record levels of June 2020. It imported 9.7 million barrels per day in July, the fourth straight month below 10 million barrels per day.

Meanwhile, fuel demand in the world’s third-largest importer, India, rose in July to its highest since April as pandemic restrictions and lockdowns were unwound in most states, boosting industrial activity and mobility.

Oil also fell as the US Dollar rallied to a four-month high against the Euro after Friday’s stronger-than-expected US jobs report spurred bets that the Federal Reserve may move more quickly to tighten its monetary policy.

A stronger US Dollar makes oil more expensive for holders of other currencies.

Analysts said the oil market was looking for direction from monthly data due this week – the US Energy Information Administration on Tuesday, and the Organization of the Petroleum Exporting Countries (OPEC) and the International Energy Agency (IEA) on Thursday.

With the latest development, the Organization of the Petroleum Exporting Countries and allies (OPEC+) will make monthly supply hikes of 400,000 barrels per day from August and continue until all of its pandemic-related output reduction is reversed as there are expectations that the market will be able to absorb the additional barrels as demand accelerates.