By Peter Nurse
Investing.com -- Oil prices weakened Monday, weighed by concerns about weakened demand from China, the world’s top crude importer, as it battles a sustained COVID-19 outbreak.
By 9:15 AM ET (1315 GMT), U.S. crude futures traded 1.5% lower at $108.16 a barrel, while the Brent contract fell 1.3% to $110.91 a barrel.
U.S. Gasoline RBOB Futures were down 0.2% at $3.7508 a gallon.
China's two largest cities, Beijing and Shanghai, tightened COVID-19 curbs on Monday as the world's second-largest economy continued its battle with a virus, severely limiting the movement of its citizens even as the rest of the world has opted to open up and live with the virus.
This has had an impact on China’s demand for crude.
Although China's crude oil imports grew nearly 7% in April from the same month a year earlier, this was its first rise in three months, and imports for the January-April period as a whole fell 4.8% versus the same period last year.
Saudi Arabia, the world's top oil exporter, lowered crude prices for Asia and Europe for June on Sunday, an indication of expected weaker demand.
“Lockdowns in China have weighed on domestic fuel demand and this is likely to weigh on refinery runs, which in turn would reduce demand for crude oil,” analysts at ING said in a note.
Also weighing on the oil market Monday has been the strengthening of the U.S. dollar, with the greenback hitting a fresh two-decade high, making oil more expensive for holders of other currencies.
That said, crude prices remain elevated, with both the benchmark contracts having gained over 40% so far this year.
Russia’s invasion of Ukraine has added to the general tightness of the market as countries seek alternate suppliers while the Organization of the Petroleum Exporting Countries takes a slow and steady stance in returning supply to the global market after the cuts instigated during the pandemic.
The European Union is closing in on agreeing on a sixth package of sanctions against Russia, a German foreign ministry spokesperson said on Monday, after the European Commission proposed a phased embargo on Russian oil late last week.
Such an embargo requires a unanimous vote among EU members, and there has been push back from some of the countries most dependent on Russian energy, like landlocked Hungary, Slovakia, and the Czech Republic.
“The EU had revised the proposal for the ban in order to make it more manageable for those countries that are heavily reliant on Russian oil,” said ING. “Hungary and Slovakia under the latest proposal would have until the end of 2024 to wean themselves off Russian oil, whilst the Czech Republic would have until June 2024. However, this appears to have not been enough for Hungary, which continues to block the planned ban.”
Over the weekend, the Group of Seven major industrialized nations agreed to a similar ban on imports of Russian oil.