By Peter Nurse
biedexmarkets.com — Crude oil prices slipped lower Tuesday, falling below $70 a barrel on fears that rising Covid cases in China would stunt growth in the second-largest oil consumer in the world.
By 10:05 AM ET (1405 GMT), futures traded 2.3% lower at $69.61 a barrel, falling beneath $70 for the first time in two weeks, while the contract fell 1.9% to $71.50.
U.S. Gasoline RBOB Futures were down 1.2% at $2.2474 a gallon.
China had largely managed to control the Covid-19 virus since the initial outbreak, helping to underpin a strong economic recovery from the pandemic, greatly contributing to the broader rebound in oil.
However, it is now implementing a wave of travel restrictions and quarantine orders at a level not seen since the initial outbreak. Wuhan, where the virus was first reported in 2019, reported three new locally transmitted cases on Monday after more than a year, prompting the authorities to test the city’s 12 million residents amid fears the delta variant of the virus will quickly take hold.
China’s factory activity growth had already slipped sharply in July, with the falling on Monday to the lowest level since April 2020.
Covid cases are also rising in the U.S., with the Centers for Disease Control and Prevention reporting 72,000 new cases per day in the United States over the weekend, a 44% increase over the previous week and higher than the peak set in the summer of 2020.
“Things are going to get worse” as the delta variant fuels a surge in cases, according to U.S. infectious-disease expert Dr. Anthony Fauci earlier this week. However, he did not expect the U.S. to lock down businesses again, which means this outbreak would have less of an impact on U.S. oil demand.
That said, “the balancing force of higher prices is already manifesting,” said analysts at JPMorgan (NYSE:), in a note. “Consumers are warning of demand destruction, while OPEC+ has decided to release barrels. The ability to find balance in the global market could manifest even in a month or two, and our model implies that we will reach an apex in price by 4Q ‘21.”
Later in the session, the will release its weekly assessment of crude stockpiles.