By Adedapo Adesanya
Crude oil prices fell on Tuesday as concern returned about the prospect of more interest rate hikes and COVID-19 lockdowns weakening fuel demand.
Brent crude settled at $92.83 a barrel after losing $2.91 or 3 per cent while the United States West Texas Intermediate (WTI) depreciate to $86.88 per barrel.
Demand fears reversed a two-day rally on the Organisation of the Petroleum Exporting Countries and its allies (OPEC+) first output target cut since 2020.
The focus has temporarily shifted to economic and inflationary concerns amongst which the two relevant factors are the extended COVID lockdowns in China.
China, the world’s largest oil importer, has eased some COVID-19 curbs but extended lockdowns in Chengdu, which added to worries that high inflation and interest rate hikes will hit oil demand.
Shenzhen eased a COVID-19 lockdown on Monday as infections in its latest outbreak showed signs of stabilising, while most of the 21.2 million residents of Chengdu faced extended curbs on their movements.
An outbreak in late August prompted the technology hub of Shenzhen to order most of its 17.7 million residents to remain largely at home over the weekend and to take two rounds of tests.
China has stuck to its stringent COVID policies even as most other countries have eased restrictions with the aim of living with the virus.
The approach increasingly clouds the outlook for the world’s second-largest economy.
The market is also jittery as the European Central Bank (ECB) is widely expected to lift rates sharply when it meets on Thursday.
A stronger US Dollar, which was up about 0.6 per cent on better-than-expected US services industry data, also put pressure on oil prices.
On the supply side, signs that an agreement to resurrect Iran’s nuclear deal with world powers was less imminent challenged crude prices by reducing the odds that OPEC+ would move forward with its output reduction plan.
The EU’s foreign affairs and security policy chief, Mr Josep Borrell said he is “less optimistic” that the negotiating parties could reach an agreement to revive the so-called Iranian nuclear deal than he was early last week.
“I am sorry to say that I am less confident today than 28 hours before…about the prospects of closing the deal right now,” Mr Borrell said earlier this week.
Currently, Iran and the United States are indirectly negotiating – via the mediation of the European Union – a return to the so-called nuclear deal, which could ultimately lead to the lifting of the US sanctions on Iran’s oil industry and exports.
Aduragbemi Omiyale