Oil prices settled lower on Wednesday due to concerns about a surge in COVID-19 cases in China, the world's top oil importer. Traders were weighing the possibility that easing pandemic restrictions in the country would boost fuel demand against the negative impact of the virus outbreak. Brent crude futures fell 1.3% to settle at $83.26 per barrel, while U.S. West Texas Intermediate crude futures settled at $78.96 per barrel, down 0.7%.
Fed Interest Rate Hike Expectations Affect Oil Markets
In addition to concerns about China, oil markets were also impacted by expectations of another interest rate hike in the United States. The U.S. Federal Reserve is trying to limit price increases in a tight labor market. Market participants noted that trading volumes this week are expected to be lighter than usual as the end of the year approaches, creating more volatility in oil prices.
Oil Prices Rebound, but Uncertainty Remains
Despite Wednesday's declines, oil prices have seen a strong rebound over the past few weeks. A cold snap in the U.S. caused shutdowns at major production sites and refineries at the weekend, leading to higher settlements on both crude benchmarks for three straight sessions. However, analysts say that next year brings "immense uncertainty and plenty of potential upside risk for prices," including the reopening of China, lower Russian output, and further OPEC+ cuts.
U.S. Crude Oil Inventories Fall, Gasoline and Distillate Stocks Rise
According to market sources citing American Petroleum Institute figures, U.S. crude oil inventories fell last week while gasoline and distillate stocks rose unexpectedly. The U.S. government will release its weekly inventory figures at 10:30 a.m. EST on Thursday.