By Peter Nurse
Investing.com — Oil prices retreated Tuesday, handing back the previous session’s gains on concerns the prolonged COVID outbreak in China, the world’s largest importer of crude, will further hit demand.
By 9:15 AM ET (1315 GMT), futures traded 3.4% lower at $103.94 a barrel, while the contract fell 3.3% to $109.38 a barrel.
U.S. were down 3.3% at $3.2657 a gallon.
The Chinese financial hub of Shanghai confirmed on Sunday that three people infected with COVID-19 have died, the first time during the current outbreak that it reported deaths among coronavirus patients.
Additionally, other areas across the country tightened controls, including Tangshan, the country’s largest steelmaking town, and the Zhengzhou Airport Economic Zone, a central Chinese manufacturing area that includes Apple supplier Foxconn.
This suggests China has no plans of abandoning its zero-tolerance policy toward the disease, and follows the country’s first quarter GDP report, released Monday, already showing a sharp slowdown.
“The one factor which continues to hold the market back is the Covid situation in China and the impact this is having on demand,” said analysts at ING, in a note. “Clearly, the regional lockdowns that we are seeing have lasted longer than many were anticipating, and so this will have a bigger impact on oil demand in the short term.”
Still, oil prices remain well over $100 a barrel, with both benchmarks gaining more than 1% on Monday, hitting their highest levels since March 28, helped by a wave of protests at production and transportation facilities in Libya, which took an estimated 500,000 barrels a day offline.
Libya is a key source of oil for Europe and an even more important one at a time when many European buyers are choosing not to buy Russian oil. Reuters reported earlier Tuesday that Russia’s output fell some 300,000 barrels a day below its OPEC+ quota in March.
This shortfall meant that the Organization of Petroleum Exporting Countries and allies, a group known as OPEC+, produced 1.45 million barrels per day below its production targets in March, adding to the tightness of the global market.
“The group has consistently failed to hit its agreed output levels for a number of months,” added ING, “with just a handful of producers, including Saudi Arabia and the UAE, having a meaningful amount of spare capacity.”
The International Energy Agency said in a monthly report last week it expected Russian oil output losses to grow to 1.5 million barrels a day in April and to double to 3 million barrels a day from May.