Brent futures decline rapidly on Covid-19 resurgence in China

Front-month ICE Brent has gone down by $3.20/bbl on the day, to $93.73/bbl at 09.00 GMT.

PHOTO: China has seen an increase in Covid-19 cases after the Golden Week holiday from 1-7 October. Getty Images

Upward pressure:  

Morgan Stanley commodities chief Martijn Rats told CNBC in an interview last Friday that oil demand destruction as a result of weaker economic activity and a potential recession has yet to kick in. There is still room for Brent to move up, he said.

According to Rats, a number of factors including OPEC+'s decision to cut output quotas by 2 million b/d from November, dwindling US strategic petroleum reserves (SPRs) and increased chances of disruptions to Russia’s oil supplies are likely to drive prices upwards.

Downward pressure:

The resurgence of Covid-19 in China and implementation of new restrictions have led to concerns that oil demand will decrease.

China has imposed fresh lockdowns and travel restrictions in smaller cities, and increased testing in Shanghai and other big cities, after the national number of new daily Covid-19 cases tripled during a weeklong holiday, CBS reports, citing China’s national broadcaster CCTV.

JP Morgan chief executive Jamie Dimon has predicted a recession for the US and global economies by mid-2023. He has warned that the US is likely to fall into a “very mild to quite hard” recession in the next six to nine months due to "very, very serious" headwinds.

Dimon has told CNBC that runaway inflation, higher interest rates than expected, unknown effects of quantitative tightening, and Russia's war in Ukraine are among the signs of trouble.

Dutch financier ING has said that a US Federal Reserve’s 75-basis points interest rate hike in November is already priced in, but that additional hawkish comments can encourage markets to speculate on larger hikes or a more prolonged tightening cycle.

By Konica Bhatt

Please get in touch with comments or additional info to news@engine.online