Oil: A new week in red after China hunkers down over Covid

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Oil: A new week in red after China hunkers down over Covid
Credit: © Reuters.

By Barani Krishnan

Investing.com -- China can easily lock down cities with Covid, but it can’t seem to lock Covid out of its cities — the way most of the world has done.

Crude prices were down again this week, reacting to headlines about the world’s largest oil importing country in crisis mode again over the two-year-old coronavirus pandemic — which barely makes news anymore in most countries.

New York-traded West Texas Intermediate , or WTI, was up $1.72, or 2%, at $88.19 per barrel by 13:35 ET (18:35 GMT) Friday. 

The rebound on the day wasn’t enough though to prevent the U.S. crude benchmark from posting a weekly loss. After two back-to-back weekly wins of about 5% and 3.5%, WTI was down almost 5% in the current week. The decline was mostly due to a net drop of 7% between Monday and Wednesday. 

London-traded Brent crude was up $1.58, or 1.7%, on the day. For the week, the global crude benchmark fell nearly 3.5% after gains of about 3%, 2.5% and 2% over three prior weeks.

“It's been quite the volatile week for oil, with Chinese rumors [over Covid] not going away, [and] restrictions and mass testing being undertaken once more,” said Craig Erlam, analyst at online trading platform OANDA.

China’s adherence to a zero-Covid policy — using snap lockdowns, mass testing, extensive contact-tracing and quarantines to stamp out infections as soon as they emerge — has taken a heavy toll on the world’s number two economy and led to angry backlashes from its people.

Friday’s move to reduce the quarantine period for travelers in China, along with the scrapping of a major restriction on international flights, appeared to be signs of compromise from the Chinese government to appease a population weary of lockdowns that no longer seem to happen in other countries.

China Covid fears aside, oil prices also fell on the week due to an outsized build in U.S. crude inventories , which jumped almost 4.0 million barrels during the week to Nov. 4 — three times more than forecast.

Oil, gold and most other commodities have rebounded since Thursday after data showing the U.S. Consumer Price Index registered in October its slowest annual growth in nine months, expanding just 7.7% over a 12-month period, versus a growth of 8% forecast by economists and against the previous yearly growth of 8.2% to September.

The slowing pace of inflation has intensified expectations that the Federal Reserve will resort to a smaller interest rate hike next month.

In its bid to control price pressures, the Fed has added 375 basis points to interest rates since March via six rate hikes. Prior to that, interest rates were at a peak of just 25 basis points as the central bank cut rates to nearly zero after the global outbreak of the coronavirus pandemic in 2020.

Prior to October, the Fed had struggled to contain inflation, as the annual reading for the CPI hit a four-decade high of 9.1% in June. The central bank, which executed four back-to-back jumbo rate hikes of 75 basis points from June through November, is contemplating a more modest 50-basis point increase in December.

Speculation of a scaled-down rate hike in December has slammed the brakes on the dollar's rally of the past few months, sending the U.S. currency diving since Thursday. The Dollar Index , which pits the greenback against the euro, yen, pound, Canadian dollar, Swedish krona and Swiss franc, was down 4.1% on the week, its most since a 4.8% weekly drop in March 2020.

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