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China's Rising COVID-19 Cases Cause Concerns Over Oil Demand

Oil prices fell on Wednesday due to worries that an increase in COVID-19 cases in China, the largest oil importer in the world, could disrupt its economic recovery and hinder demand growth as pandemic restrictions are lifted.


Brent futures for February delivery dropped 78 cents, or 0.9%, to $83.55 per barrel, while U.S. crude fell 75 cents, or 0.9%, to $78.78 per barrel.

Both benchmarks experienced a decrease of more than $1 per barrel earlier in the day after reaching their highest levels in three weeks on Tuesday due to hopes for an increase in fuel demand. China announced that it would no longer require inbound travelers to quarantine starting on January 8th, a significant step towards relaxing its strict border controls. However, Chinese hospitals face intense strain due to a surge in COVID-19 infections as the country addresses the virus as an endemic issue.

"Even after China eased COVID restrictions, it is difficult for demand to recover in a short time due to the rapid decline of people's outdoor activities due to the massive infection (numbers)"

said Leon Li, an analyst at CMC Markets. Oil refiners in the U.S. were working on Tuesday to restore operations at a dozen facilities that were shut down by freezing weather across much of the country. This process may continue into January in some cases. The Arctic blast that brought temperatures well below freezing also disrupted production, reducing oil and gas output from North Dakota and Texas.

Oil Prices Supported by Russia's Plans to Ban Oil Sales to G7 Price Cap-Abiding Countries

Prices were supported by the news that Russia plans to ban oil sales from February 1st to countries that adhere to a G7 price cap imposed on December 5th. U.S. crude oil stocks are estimated to have fallen by 1.6 million barrels last week, with distillate inventories also expected to be down, according to a preliminary Reuters poll released on Tuesday.

The American Petroleum Institute, an industry group, will release data on U.S. crude inventories at 4:30 p.m. EDT on Wednesday. The U.S. Department of Energy will release its figures at 10:30 a.m. (1530 GMT) on Thursday.