Oil prices fall as China signals no change to zero-Covid policy

The country's exports and imports also both fell unexpectedly in October

Pump jacks operate in front of a drilling rig in Texas. Oil prices have been supported by looming sanctions on Russian crude. Photo: Reuters

Oil prices fell in morning trading on Monday after China, the world’s largest crude importer and second-biggest economy, reiterated its commitment to its zero-Covid policy, which has weighed on oil demand.

Brent, the benchmark for two thirds of the world’s oil, was 0.39 per cent lower at $98.19 a barrel at 8.40pm UAE time. West Texas Intermediate, the gauge that tracks US crude, was down 0.46 per cent at $92.18 a barrel.

Oil prices surged to a two-month high on Friday on reports that Beijing was planning to end a regulation that imposes a penalty on airlines for bringing virus cases into the country.

But a China National Health Commission representative stressed in a press conference on Saturday that the country will soldier on with its strict measures, dashing hopes of a rebound in oil demand in the world’s second-largest economy.

“The gain in oil markets shows how sensitive they are to any indication of China opening up more of its economy,” Edward Bell, senior director of market economics at Emirates NBD, said in a research note.

China imported 40.24 million tonnes of crude oil, or about 9.79 million barrels per day, in September.

Crude shipments were up from 9.5 million bpd in August, but were well below the 10 million bpd China imported a year earlier, data from the country's General Administration of Customs showed last month.

China’s latest trade data also weighed on market sentiment.

The country’s exports and imports both unexpectedly fell for the first time since 2020, with overseas consumers slashing spending amid recession risks.

Exports in dollar terms fell 0.3 per cent in October from a year earlier while imports dropped 0.7 per cent, according to data from China’s customs authority.

Markets were expecting 4.3 per cent growth in exports and a 0.1 per cent increase in imports, said Naeem Aslam, chief market analyst at Avatrade.

Oil prices have been supported by concerns of supply tightening from looming sanctions on Russian crude.

G7 nations will finalise the implementation of the price cap on seaborne Russian oil in the coming weeks, the group said in a statement on Friday.

“We continue to encourage oil-producing countries to increase production, which will decrease volatility in energy markets.”

The purpose of the price cap is to permit Russian oil to reach markets that have not imposed import bans, limiting further increases in crude oil prices while dealing a blow to Moscow's finances.

An EU embargo on Russian crude oil and product imports that comes into effect in December 2022 and February 2023, respectively, is expected to result in significant declines in Russian crude output.

Russia, which will continue exporting crude to some European countries after the ban, will still need to find a new market for more than 1 million barrels per day of crude by December, according to analysts.

The country's total oil production is forecast to decline to 9.5 million bpd by February 2023, a 1.9 million bpd drop compared to February 2022, the International Energy Agency has said.