Oil prices fell on Monday as concerns about weak economic growth in China, the world’s top oil importer, outweighed fears of potential supply stress from a potential European Union ban on Russian crude.
Brent crude futures fell 71 cents, or 0.6%, to $106.43 a barrel at 0801 GMT, while U.S. West Texas Intermediate (WTI) crude futures fell 70 cents, or 0.6%, to $103.99 a barrel. Markets in Japan, India and across Southeast Asia were closed for public holidays on Monday.
Prices fell after China released data on Saturday showing that factory activity in the world’s second-largest economy contracted for a second month to its lowest since February 2020 because of COVID lockdowns.
“A slowing to that extent, when China is already suffering from a property bust and worries about its (until recently) increased regulation, is potentially a major issue for commodity markets and the world economy,” said Tobin Gorey, a Commonwealth Bank commodities analyst, in a note.
On the supply side, Libya’s National Oil Corp (NOC) said on Sunday it would temporarily resume operations at the Zueitina oil terminal to reduce stockpiles in storage tanks to avert an “imminent environmental disaster” at the port.
NOC in late April declared force majeure on some shipments at Zueitina as political protesters forced a number of oil facilities to suspend operations.
Limiting the downside for oil prices is the EU’s leaning towards a ban on imports of Russian oil by the end of the year, two EU diplomats said, after talks between the European Commission and EU member states over the weekend.
Around half of Russia‘s 4.7 million barrels per day (bpd) of crude exports go to the EU, supplying about one-fourth of the EU’s oil imports in 2020.
“In the absence of an immediate EU total oil embargo, eliminating mobility restrictions in China is necessary to drive oil out of its current range,” said SPI Asset Management Managing Partner Stephen Innes.
While Western countries have curbed buying Russian oil as sanctions have hit shipping and insurance for the country’s exports, the impact on global supply has been cushioned as India has been picking up heavily discounted Russian cargoes.
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