Oil prices were down about two percent on Friday as China broadened its coronavirus lockdowns and travel restrictions, greatly reducing its import demand.
PVM Oil analyst Stephen Brennock told Reuters that “uncertainty over its zero-Covid policy” would keep Chinese oil demand low for the foreseeable future. Chinese analysts, on the other hand, insisted a dramatic “economic recovery” is right around the corner thanks to upcoming “stimulus” policies.
Much of that uncertainty is due to residents of Chinese cities, including major manufacturing hubs such as Guangzhou, never really knowing when a purportedly tiny number of coronavirus infections will cause complexes, districts, or the entire city to be locked down without notice.
The Chinese Communist Party pointedly expressed support for “zero-Covid” lockdowns at its National Party Congress last week, signaling in a variety of explicit and subtle ways that the policy must be regarded as flawless, and is not going away.
Oil falls as China widens COVID curbs; still set for weekly gain https://t.co/3lQL6SLlDu
— Reuters Energy and Commodities (@ReutersCommods) October 28, 2022
“Brent futures fell $1.70, or 1.8%, to $95.26 a barrel by 11:18 a.m. EDT (1518 GMT), while U.S. West Texas Intermediate (WTI) crude fell $1.64, or 1.8%, to $87.44. That put Brent on track to rise about 2% for the week and WTI up about 3%,” Reuters reported.
Data released this week showed China’s crude oil imports for September were down two percent year-on-year, while exports of surplus fuel hit their highest level since June 2021.
MarketWatch on Friday specifically cited the Guangzhou lockdown as a major “drag on oil prices.”
Oil slips as China expands COVID curbs, but on track for weekly gains https://t.co/LW066NIsYg
— MarketWatch (@MarketWatch) October 28, 2022
The drag from Chinese lockdowns was collectively big enough to offset rising U.S. export demand and possible news from the Federal Reserve that interest rates would stop climbing.
Chinese buyers went on a late shopping spree on Thursday, buying up about 10 million barrels from Africa, Brazil, and the Middle East in an effort to build inventories.
Rising diesel futures propped up the oil market a bit, but that was not really cause for celebration since those prices are rising because the United States is running out of diesel fuel. Current U.S. diesel inventories are only large enough to fill 27 days of demand, a seasonal low not seen since 1945.
Diesel prices at the pump are now $1.45 per gallon higher than gasoline, the highest difference between the two fuels on record, and price spikes are expected throughout the rest of the year, which could cause supply chain issues and make consumer price inflation even worse, since diesel fuel is commonly used for freight transportation.