Crude Oil Plunges as Fresh Chinese Lockdown Grips Market

By Adedapo Adesanya

Crude oil tumbled more than 3 per cent on Thursday as new COVID-19 lockdown measures in China added to worries of high inflation and interest rate hikes the market was already battling with.

The price of Brent crude plunged by $3.28 or 3.4 per cent to trade at $92.36 a barrel while the US West Texas Intermediate (WTI) crude fell by $2.94 or 3.3 per cent to $86.61 per barrel.

Investors are wary about the impact of the latest COVID-19 curbs in China, where the city of Chengdu on Thursday was the latest to order a lockdown that has hit manufacturers.

Asia’s factory activity slumped in August as China’s zero-COVID curbs and cost pressures continued to hurt businesses, dampening the outlook for the region’s fragile recovery.

Country-wise, Chinese factory activity in August contracted for the first time in three months amid weakening demand, while power shortages and virus outbreaks disrupted production.

Southern Chinese tech hub Shenzhen has also tightened COVID-19 curbs as cases kept increasing. Large events and indoor entertainment were suspended for three days in the city’s most populous district, Baoan.

The US Dollar index hit a 20-year high after US data showed a resiliently strong economy, giving the Federal Reserve more room to raise interest rates. A stronger greenback makes dollar-priced oil more expensive for holders of other currencies.

Prices were also affected even as Russia said it would not supply oil to countries that decide to impose a price cap on its oil.

The cap scheme, an idea of the G7 nations, was first introduced in June by the US. The initial idea was to maintain a cap above Russia’s cost of production to keep Russian oil on the market but reduce revenues for its war coffers.

The Organisation of the Petroleum Exporting Countries and allies (OPEC+) will discuss output cuts at a meeting on September 5, but the benchmarks were still on track to post their worst drop in four weeks.

A possible revival of a 2015 Iran nuclear deal which would allow the OPEC member to boost its oil exports also weighed on prices.

French President Emmanuel Macron noted that he hoped a deal would be concluded in the coming days.