Oil prices dropped on Friday, retreating further from 11-month highs hit last week, weighed down by worries that new pandemic restrictions in China will curb fuel demand in the world’s biggest oil importer.
U.S. West Texas Intermediate (WTI) crude futures dropped $1.38, or 2.6%, to trade at $51.75 per barrel, after slipping 18 cents on Thursday.
Brent crude futures fell $1.31, or 2.34%, to $54.79 per barrel, erasing a 2 cent gain on Thursday.
Recovering fuel demand in China underpinned market gains late last year while the United States and Europe lagged, but that source of support is fading as a fresh wave of COVID-19 cases has sparked new restrictions to contain the spread.
“Indeed, investors are struggling to see through short-term pain for long-term gain heading into the weekend as COVID case counts in China are the most significant demand concern for traders,” Axi chief market strategist Stephen Innes said in a note.
The commercial hub of Shanghai reported its first locally transmitted cases in two months on Thursday, and Beijing is urging people not to travel during the upcoming Lunar New Year holiday, when tens of millions of urban workers typically head back to their villages.
A seasonal boost to China’s gasoline demand that is typically seen during the New Year holidays will be moderated by the tightened restrictions this year, consultancy FGE said in a note.
“We now have some data on vaccine rollouts, which show that acceptability is a bit on the low side, so pace of implementation may be slow… There may well be a bearish momentum developing (in oil markets),” said Sukrit Vijayakar, director of energy consultancy Trifecta.
The market is awaiting official oil inventory data from the U.S. Energy Information Administration on Friday, after industry data on Wednesday showed a surprise 2.6 million barrel increase in U.S. crude inventories last week compared with analysts’ forecasts for a 1.2 million barrel draw.