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Oil Tumbles Anew as China’s Covid Bogeyman Returns

Published Oct 11, 2022 02:48PM ET
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By Barani Krishnan

Investing.com -- If Vladimir Putin and OPEC are oil bulls’ best friends, you can count on China and the Federal Reserve for having the back of the bears.

In a way that’s become quite predictable these days, China’s Covid bogeyman pops up after crude prices have stacked up double-digit gains to announce new social curbs in the world’s largest oil importer. 

So was the case on Tuesday as Shanghai and other big Chinese cities, including Shenzhen, ramped up testing as coronavirus infections rose, with some local authorities hastily closing schools, entertainment venues and tourist spots. 

The result: a 3% tumble in crude prices since this week began, after last week’s 17% run-up.

New York-traded West Texas Intermediate crude settled down $1.78, or 2%, at $89.35, extending Monday’s 1.6% slide. The U.S. crude benchmark rose 17% through last week, registering a powerful start for October, after a 12.5% drop in September and 24% loss for the third quarter.

Brent oil settled Tuesday’s session down $1.90, or 2%, at $94.29 per barrel, after a 1.8% slide in the previous session. Brent rose 11% last week, making up all of September’s loss and recovering partially from its 22% loss in the third quarter.   

China’s Covid cases have risen to their highest since August, with the uptick coming after increased domestic travel during the National Day "Golden Week" earlier this month, Reuters reported, as authorities reported 2,089 new local infections for Oct. 10 alone — the most since Aug. 20.

Shanghai, a city of 25 million, said it had 28 local cases for Oct. 10, the fourth day of double-digit increases. It will conduct mass testing at least twice a week until Nov. 10, a step up from once a week, to avoid a reprise of its economically and psychically scarring lockdown in April-May.

While Chinese authorities often have statistics to justify the new curbs and lockdowns, to those on the risk side of markets, especially in oil, the popular thinking is that the largest oil importer had much to gain from keeping crude prices down.

"From an economic perspective, it seems like China's throwing the baby out with the bathwater by continuing to lock down its population to lower cases,” John Kilduff, partner at New York energy hedge fund Again Capital, was quoted saying. 

Oil import quotas for China, released on Monday, weren’t helpful either in reigniting last week’s rally.

This week’s slump in oil also came on the back of new shudders introduced into the market by Fed policy-makers.

Cleveland Fed President Loretta Mester warned on Tuesday that a potential shock could tip the U.S. economy into recession.

Her caution came on the heels of the stance by Fed Vice Chair Lael Brainard on Monday that U.S. monetary policy will have to be restrictive in the near term as policy tightening will take time to produce results against inflation.

“I see a limited second-half GDP rebound, with GDP growth remaining flat this year,” Brainard said, appearing on a live-streamed discussion about the economy.

World Bank President David Malpass and International Monetary Fund Managing Director Kristalina Georgieva added to market caution when they warned on Monday of a growing risk of global recession and said inflation remained a continuing problem.

Market participants were also on the lookout for U.S. weekly oil inventory data, due after market settlement from API, or the American Petroleum Institute.

The API will release at approximately 4:30 PM ET (20:30 GMT) a snapshot of closing balances on U.S. crude, gasoline and distillates for the week ended Oct. 7. The numbers serve as a precursor to official inventory data on the same due from the U.S. Energy Information Administration on Wednesday.

For last week, analysts tracked by Investing.com expect the EIA to report a crude stockpile build of 1.75 million barrels, versus the 1.36-million barrel reduction reported during the week to Sept. 30.

On the gasoline inventory front, the consensus is for a draw of 1.825 million barrels over the 4.728 million-barrel decline in the previous week.

With distillate stockpiles, the expectation is for a drop of 2.05 million barrels versus the prior week’s deficit of 3.44 million.

Oil Tumbles Anew as China’s Covid Bogeyman Returns
 

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Comments (10)
Stephen Fa
Stephen Fa Oct 12, 2022 9:25AM ET
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COVID communism: lock downs!
Ken Roth
Ken Roth Oct 12, 2022 6:18AM ET
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Putin and Salmans plan to get oil to rise to 100 dollars by announcing a fictous cut in Opec production by 2 million when they are currently missing production quota by 3.5 mill barrowls pr. day. Problem is now for salman that US is reviewing our relationship with the saudis a possibly allowing the Yemens to gain force and withdrawing military assistance to Saudi Arabia, meanwhile Putin has lost nothing....Salman is being played greatly by Putin.
Brad Albright
Brad Albright Oct 12, 2022 6:18AM ET
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Yep.
Sean Brennan
Sean Brennan Oct 11, 2022 10:18PM ET
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2% supply cut also never justified a 16% rally. that's just bad math.
Dave Jones
Dave Jones Oct 11, 2022 5:19PM ET
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Covid will tear through China they have no choice
SquadW Name
SquadW Oct 11, 2022 4:12PM ET
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who the ******* is the covid bogeyman?
Barani Krishnan
Barani Krishnan Oct 11, 2022 4:12PM ET
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It's an expression for something widely regarded as an object of fear.
Bhaskar Roy
Bhaskar Roy Oct 11, 2022 3:51PM ET
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A renewed conflict between Russia and Ukraine could push oil prices higher again. As a result, there is a possibility of a market crash.
Brad Albright
Brad Albright Oct 11, 2022 3:51PM ET
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Renewed? Where have you been?
Bhaskar Roy
Bhaskar Roy Oct 11, 2022 3:51PM ET
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A renewed conflict between Russia and Ukraine could push oil prices higher again. As a result, there is a possibility of a market crash.
Bhaskar Roy
Bhaskar Roy Oct 11, 2022 3:51PM ET
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A renewed conflict between Russia and Ukraine could push oil prices higher again. As a result, there is a possibility of a market crash.
Steven Kemp
Steven Kemp Oct 11, 2022 3:43PM ET
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this is not about covid but quelling the people rebelling against all the over the top control of their lives
Connor Murphy
Connor Murphy Oct 11, 2022 3:06PM ET
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Wow, Barani. Its almost like everyone in the comments section was saying this months ago. Behind the curve as usual. Next youll tell us that it was, in fact, the US that blew up nordstream. What hot takes from last quarter will you come up with next, I wonder?
Barani Krishnan
Barani Krishnan Oct 11, 2022 3:06PM ET
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Hey genius, we don't need your flattery not sarcasm. You're welcome to drop your pile on other sites. I narrate the market as the action and flow dictates. Good day.
Barani Krishnan
Barani Krishnan Oct 11, 2022 3:06PM ET
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"nor" your sarcasm (typo)
Bill Powers
Bill Powers Oct 11, 2022 3:06PM ET
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"we". don't include the rest of us in your "we". if you can't handle the heat, stay out of the comment section.
Barani Krishnan
Barani Krishnan Oct 11, 2022 3:06PM ET
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Bill Powers  I'm adding you to the "Murphy list". I write the oil copy here and I will respond to the comments in whichever way I deem fit. YOU stay away if you don't like the narrative.
Brad Albright
Brad Albright Oct 11, 2022 3:06PM ET
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Writing criticism from geniuses who can barely compose a cogent comment, much less a comprehensive article.
 
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