By Adedapo Adesanya
Oil prices closed in the bearish territory on Friday as traders weighed the effect of weaker global growth, higher interest rates and COVID-19 lockdowns in China on demand for the commodity.
The forecast by the International Monetary Fund (IMF) this week, which cut the global economic growth forecast for 2022 has continued to affect the market.
It could further downgrade growth this year if Western countries expand their sanctions against Russia over its war against Ukraine, and energy prices rise further.
Germany, which gets about a quarter of its oil from Russia, said that it will stop imports of Russian oil by the end of the year as the German government will cut its growth forecast for 2022 to 2.2 per cent from 3.6 per cent.
The Netherlands said it plans to stop using Russian fossil fuels by the end of this year as European Union (EU) countries are edging closer to a plan to eventually phase out imports of Russian oil.
The US and the United Kingdom previously moved to implement bans in response to Russia’s invasion of Ukraine, while the EU has moved more slowly amid resistance given the region’s heavy reliance on energy supplies from the country.
These were what the IMF considered when making its projections for 2022 and yesterday, it weighed on the price of the Brent crude, which sank by $1.68 or 1.55 per cent to $106.65 per barrel, while the United States West Texas Intermediate (WTI) crude fell by $1.72 or 1.66 per cent to $102.07 per barrel.
Meanwhile, Chinese demand for petroleum, diesel and aviation fuel in April is expected to slide 20 per cent from a year earlier as many of China’s biggest cities, including Shanghai, are in COVID lockdowns.
Chinese authorities continue to pursue a zero COVID policy, imposing strict lockdowns, including one that has been going on for weeks for 26 million residents in the financial centre, Shanghai.
Shanghai authorities announced on Friday that they would tighten the already severe restrictions, including placing electronic door alarms to prevent COVID-infected people from leaving and evacuating people to disinfect their homes.
China’s refiners are expected to lower their refinery runs in April at the biggest scale—by 900,000 barrels per day—since the beginning of the pandemic as new COVID-related lockdowns weigh on fuel consumption.
Prices were also pressured by a stronger Dollar as the US Federal Reserve Chair Jerome Powell on Thursday said a half-percentage-point increase in US interest rates “will be on the table” at the next Fed policy meeting in May, pushing the dollar to more than a two-year high.
A stronger greenback makes oil and other commodities more expensive for those holding other currencies.
Analysts noted that fears over China’s growth and overtightening by the US Federal Reserves, capping US growth, seem to be balancing out concerns that Europe will soon widen sanctions on Russian energy imports.
