Oil stabilizes as China COVID fears face tight supply issues

Crude oil storage tanks are seen at the Kinder Morgan terminal in Sherwood Park near Edmonton, Alberta, Canada November 14, 2016. REUTERS/Chris Helgren

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  • New case of Omicron sub-variant in Shanghai rattle market
  • The US dollar at its strongest since October 2002
  • Russian court overturns CPC pipeline suspension order

NEW YORK, July 11 (Reuters) – Oil prices were little changed on Monday as markets balanced an expected drop in demand due to mass testing for COVID-19 in China against lingering worries about oil shortages. ‘supply.

Brent crude futures fell 33 cents, or 0.3%, to $106.69 a barrel as of 12:43 p.m. EDT (1643 GMT), while U.S. West Texas Intermediate (WTI) crude rose fell 86 cents, or 0.8%, to $103.93.

While the US Federal Reserve is expected to continue raising interest rates, open interest in NYMEX futures contracts fell on July 7 to its lowest level since October 2015 as investors reduced their risky assets.

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Last week, oil speculators reduced their net long positions in futures and options on the New York Merchant and Intercontinental exchanges to their lowest level since April 2020.

“We still see a likely recession that rears its ugly head from time to time causing a significant amount of sell-off out of the oil space, followed by a refocus on tight global oil supply that hasn’t again showed appreciable relaxation,” the analysts at Ritterbusch and Associates said. said in a note.

The market was shaken by the news that China had discovered its first case of a highly transmissible sub-variant of Omicron in Shanghai, which could lead to another round of mass testing, which would hurt demand for fuel. read more read more

“The combined impact of concerns over the global economic slowdown and a new COVID outbreak could hardly come at a worse time for oil markets,” Investec Risk Solutions said in a note.

The rise in the US dollar against a basket of other currencies has also pressured oil to its highest level since October 2002. A stronger dollar reduces demand for oil by making fuel more expensive for buyers using other currencies.

Eurozone finance ministers said tackling inflation was the current priority despite weaker growth in the bloc, as they were told of a deteriorating economic outlook by the European Commission. Read more

The market remains nervous over plans by Western countries to cap Russian oil prices, with Russian President Vladimir Putin warning that further sanctions could have “catastrophic” consequences for the global energy market. Read more

JP Morgan said the market was caught between worries about a potential Russian supply halt and a possible recession.

“Macroeconomic risks are becoming increasingly two-sided. A retaliatory cut of 3 million barrels (bbl) per day of Russian oil exports is a credible threat and, if materialized, will drive Brent crude oil prices to around $190 a barrel,” the bank said in a statement. Remark.

“On the other hand, the impact of significantly weaker demand growth in recessionary scenarios would see the price of Brent crude oil average around $90/bbl in a mild recession and $78/bbl bbl in a more severe downturn scenario.”

Questions also remain over how long more crude will exit Kazakhstan via the Caspian Pipeline Consortium (CPC).

Supply has continued so far on the pipeline, which carries about 1% of the world’s oil, as a Russian court overturned an earlier ruling suspending operations there. Read more

Brazilian President Jair Bolsonaro, meanwhile, said a deal was near with Moscow to buy much cheaper diesel from Russia. Read more

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Additional reporting by Sonali Paul in Melbourne and Noah Browning in London; Editing by Marguerita Choy and Krishna Chandra Eluri

Our standards: The Thomson Reuters Trust Principles.

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