December 7, 2022

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Oil falls as Chinese lockdowns outpace EU-proposed oil embargo

Oil falls as Chinese lockdowns outpace EU-proposed oil embargo

A section of the BP Eastern Trough Area (ETAP) oil platform is seen in the North Sea, about 100 miles east of Aberdeen in Scotland on February 24, 2014. REUTERS/Andy Buchanan/pool

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  • China’s COVID-19 lockdowns hurt demand in the short term
  • The European Union is preparing to finalize more sanctions against Russia
  • US crude stocks likely fell last week
  • Coming soon: API Supply Report at 4:30PM ET / 2030 GMT

(Reuters) – Oil prices fell more than 2% on Tuesday as demand concerns stemming from the prolonged coronavirus shutdowns in China overshadowed prospects of a European ban on Russian crude.

Beijing is conducting mass tests on residents to avoid a lockdown similar to what happened in Shanghai over the past month. The capital’s restaurants were closed for eating, while some apartment complexes were closed. Read more

Brent crude closed down $2.61, or 2.4 percent, to $104.97 a barrel. US West Texas Intermediate crude finished $2.76, or 2.6%, down at $102.41.

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“There are real concerns about whether Chinese demand, a huge factor in global demand, will remain strong in 2022,” said Gary Cunningham, principal at Tradition Energy.

However, prices remain high, with Brent crude hitting $139 in March to its highest level since 2008 after the Russian invasion of Ukraine, exacerbating supply concerns that were already driving up.

The European Union is working on a sixth round of sanctions against Russia, with officials saying European Commission President Ursula von der Leyen is expected to outline plans on Wednesday, including a ban on Russian oil imports by the end of this year. Read more

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Price action is likely to remain choppy as traders weigh the impact of China’s shutdown on Western oil sanctions and ahead of the US Federal Reserve meeting on Wednesday, said Phil Flynn, an analyst at Price Futures Group.

“We have a market that is in flux and it reacts from headline to headline in a very volatile trading range,” Flynn said.

Focus will also be placed on the latest round of US inventory and supply reports. On average, nine analysts polled by Reuters estimated that crude stocks fell by 800,000 barrels last week.

The American Petroleum Institute industry group releases its inventory report at 4:30 p.m. ET (2030 GMT), followed by government figures on Wednesday.

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Additional reporting by Alex Lawler and Sonali Paul; Editing by Margarita Choi, David Gregorio and David Goodman

Our criteria: Thomson Reuters Trust Principles.