By Tsvetana Paraskova – Aug 31, 2022 7:05 am CDT
- After plunging 5.5% on Tuesday, oil prices continued to fall on Wednesday morning as news of new Covid lockdowns in China fueled fresh demand fears.
- Oil prices are now on track for a third straight month of losses, which would be the longest monthly losing streak since 2020.
- A report by the OPEC+ group’s Joint Technical Committee added to the downward pressure on oil prices by raising its forecast for an oil market surplus this year by 100,000 barrels.
Oil prices fell 3% early on Wednesday, extending a 5.5% drop on Tuesday, after China placed millions of residents on Covid lockdowns and Chinese data showed a weakening of economic activity.
As of 7:40 a.m. ET on Wednesday, WTI Crude had fallen below the $90 a barrel mark and was trading at $89.06, down 2.78% on the day. Brent Crude, the international benchmark, was down 3.33% at $95.92.
Oil prices are now headed for a third straight month of losses in August and the longest monthly losing streak since 2020.
Oil opened Asian trade on Wednesday with gains, but those were erased early morning ET after China imposed new district-wide lockdowns in several cities over newly discovered cases of COVID. The port city of Dalian and the southern city of Shenzhen returned to lockdown as mass testing was stepped up and travel between the cities was discouraged. China’s ‘zero covid’ policy has weighed on the oil market amid expectations of weaker fuel demand.
In more bearish news out of China, factory activity was below the growth threshold in August, signaling another month of contraction as Covid-related restrictions and a brutal heat wave dampened manufacturing output.
Assurances from Iraq that oil supplies have not and will not be affected by the recent violence in Baghdad calmed traders and pushed oil prices further lower on Tuesday and Wednesday, although the American Petroleum Institute (API) report on Tuesday was quite bullish. The API reported a slight increase in crude oil inventories and a decline of 3.414 million barrels of gasoline for the week ended Aug. 26, compared with a gain of 268,000 barrels the previous week.
Also weighing on oil prices early on Wednesday was a report from the OPEC+ Joint Technical Committee, which raised its forecast for a surplus in the oil market this year by 100,000 barrels per day (bpd) to 900,000 bpd.
By Tsvetana Paraskova for Oilprice.com
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