- There are increased fuel demand worries as China battles a fresh wave of COVID-19 infections.
- US crude inventories rose significantly last week as domestic production increased.
- Markets are anxiously awaiting US inflation data.
On Thursday, Crude oil (CL) futures prices declined for a fourth day due to worries that new COVID restrictions in China, the largest crude importer in the world, may affect fuel demand.
Guangzhou’s 19 million-person manufacturing center reported more than 2,000 new cases on November 9, the third day above that number in the city’s deadliest outbreak. As local cases in China reached their highest level since April 30 on Wednesday, millions of residents were urged to get tested for COVID-19, and one metropolitan district was placed under lockdown.
A significant increase in US crude inventory revealed on Wednesday added to the market’s doom.
According to the Energy Information Administration, gasoline and distillate stockpiles decreased last week, but US crude stocks increased as domestic oil production rose. The previous week saw a 3.9 million barrel increase in crude inventories, bringing them to 440.8 million barrels, the highest level since July 2021. Analysts had expected a 1.4 million-barrel increase.
“Unfortunately for oil bulls, that was only the tip of the iceberg as a run of bearish economic headlines put China in the headlights. A spike in local COVID cases weighs like an anvil on oil markets,” SPI Asset Management managing partner Stephen Innes said in a note.
The dollar held onto its overnight gains before the main test of a US consumer inflation report. Investors were looking to the impending inflation figures later in the day, which are projected to indicate a fall in October’s monthly and yearly core numbers.
“While inflation globally has peaked, the cooling is not sufficiently large or broad-based to bring rate hiking cycles to a convincing conclusion, in our view,” said analysts at J.P. Morgan.
However, the analysts added that some central banks in both developed and emerging nations had turned dovish due to their concerns about monetary tightening slowing down economic growth.
The US inflation report is important for oil prices as it will either cause a rise or a fall in the US dollar. Commodities like crude, valued in dollars, are sensitive to economic releases from the US. A rise in the US Dollar would hurt oil prices, while the opposite is true.