Adedapo Adesanya
By Adedapo Adesanya
Prices of crude oil on the global market went up on Monday as markets balanced tight supply over an expected drop in demand due to mass testing for COVID-19 in China against ongoing concerns.
Brent crude gained 84 cents or 0.87 per cent to settle at $107.10 a barrel as the United States West Texas Intermediate (WTI) crude gained 70 cents or 0.7 per cent to settle at $104.09 per barrel.
The bearish case has focused on COVID-19 disruptions in China, which just identified over the weekend its first Omicron subvariant BA.5.21 in Shanghai.
China’s discovery of its first case of the highly transmissible Omicron subvariant in Shanghai, which has over 25 million residents, could lead to another round of mass testing, which would hurt fuel demand.
The zero-covid policy in the world’s largest crude oil importer sparked fears of decreased oil demand.
Further limiting oil gains are fears of a recession in the US as the Federal Reserve is expected to keep raising interest rates.
Analysts point out that the combined impact of concerns of global economic slowdown and a renewed COVID outbreak is coming at a worse time for oil markets.
Also putting pressure on oil was a rise in the US Dollar against a basket of other currencies to its highest since October 2002.
A stronger Dollar reduces demand for oil by making the fuel more expensive for buyers using other currencies.
However, oil prices have remained elevated on tight supplies, waning crude inventories, and concerns that the Organisation of the Petroleum Exporting Countries (OPEC_—specifically Saudi Arabia—doesn’t have the spare capacity that some think it has.
Also, the fear that sanctions against Russia, which are set to go into effect at the end of this year, could take too many oil barrels out of the market is compounding those fears, with no real plan in place to replace lost Russian oil barrels.
Russian President Vladimir Putin has warned that further sanctions could lead to “catastrophic” consequences in the global energy market.
