Oil prices settle lower as surging COVID cases in China bite into demand optimism

By Yasin Ebrahim 

Investing.com – U.S. crude oil prices settled lower Wednesday, as surging COVID-19 cases in China cast a shadow over the demand outlook amid Beijing's recent to move ease pandemic restrictions.

On the New York Mercantile Exchange crude futures fell $0.57 to settle at $78.96 a barrel, while on London's Intercontinental Exchange, Brent fell $1.07 to settle at $83.26 a barrel.

Just weeks after largely abandoning its zero-COVID policy, China, the largest crude importer in the world, is facing a spike in COVID infections. The wave of infections isn't only weighing on economic activity and travel, but keeping a lid on oil consumption and undermining recent bets on a reopening-led surge in demand.

China's reopening - hailed by some as a holy grail for demand - was expected to boost demand by the equivalent of 3.3 million barrels of oil a day next year, according to S&P Global's energy outlook report released earlier this month.

Expectations for a pick-up demand from China have helped oil prices recover from a slump in mid-December to one-year lows.

Beyond the fundamentals, some experts are flagging bearish technical indicators that point to further downward pressure on oil prices, which remain well below key support levels.

"The market remains well below its 55-Day Moving Average and 200DMA at 89.01 and 100.67, and with medium-term momentum declining and global growth concerns looming, we think further weakness is likely to follow," Credit Suisse said in a note, according to FXStreet.

The selloff comes ahead of data of the weekly snapshot on U.S. inventories from the American Petroleum Institute expected to show another draw in supplies following last week’s 3 million barrel decline.

API will issue at 16:30 ET (21:30 GMT) its log on U.S. crude, gasoline, and distillate stockpiles for the week ended Dec. 23. The figures serve as a precursor to the official weekly supply data due on Thursday from the EIA, or U.S. Energy Information Administration.