Oil prices continued to slide on Wednesday as concerns over China’s health situation intensified as the world’s second-largest economy is in the grip of a major wave of covid.
Around 10:30 a.m. GMT (11:30 a.m. in Paris), a barrel of Brent from the North Sea for delivery in March lost 2.25%, to 80.25 dollars.
Its American equivalent, a barrel of West Texas Intermediate (WTI) for delivery in February, fell 2.09% to 75.32 dollars.
The two world crude oil benchmarks thus started the year with losses of around 6%.
This drop in prices is widely attributed by analysts to fears for the consumption of black gold in China, the country currently facing its worst outbreak of coronavirus cases since the start of the pandemic.
Especially since “despite the relaxation of its zero Covid policy, the Chinese economy is weakening”, notes Stephen Brennock, analyst at PVM Energy.
Manufacturing activity in China fell in December for the fifth consecutive month, according to an independent index published on Tuesday, as factories were disrupted by outbreaks of contamination.
The analyst believes that “economic activity and demand for oil from the world’s largest crude importer will continue to weaken as it learns to live with the virus.”
Beijing indeed put an end to its draconian policy of “zero Covid” at the beginning of December, which imposed in particular generalized screening tests, strict monitoring of movements but also compulsory confinements and quarantines as soon as cases were discovered.
These measures, which have largely isolated China from the rest of the planet, have dealt a severe blow to the world’s second largest economy. But the sudden lifting of health restrictions has reignited contamination, which is also disrupting the country’s economic life.
At the same time, “fears of a slowing global economy and a strengthening US dollar” are adding to the bearish trend in oil, analysts at Energi Danmark say.
Investors await the publication of the minutes of the US Federal Reserve on Wednesday to look for clues on the monetary policy of the institution.
As oil is traded in dollars, a strong greenback reduces the purchasing power of investors using other currencies, and thus weighs on demand.