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Oil prices were rising in thin trade early on Friday but were headed to a third consecutive weekly loss amid growing fears of slowing demand in China where Covid restrictions are returning amid spiking numbers of infections.
Oil prices dropped early this week to their lowest level since January, following reports – later refuted – that OPEC+ could be considering a rise in production.
Fears of weak demand in China, the world’s top crude oil importer, took hold of the market on Tuesday and continue to weigh on sentiment.
China is registering near-record numbers of new Covid infections daily—close to the April 2022 peak when the financial center Shanghai was under lockdown for weeks. China’s rising Covid cases and the return of restrictions have weighed on oil prices as the market fears another slowdown in Chinese economic growth and fuel demand, on top of global recession fears.
Oil was further depressed this week by reports that the European Union is in discussions to cap the price of Russian oil at somewhere between $65 and $70 per barrel—a cap which, if approved, wouldn’t effectively lower the price of the flagship Russian crude currently being traded on the market.
There are differences among member states on the level of the price cap. One group of EU countries–including Russian neighbors Poland, Lithuania, and Estonia–believes the proposed price cap is too high and will still give Russia a handsome revenue from oil. Another group of mostly southern EU members with large shipping industries–Greece, Malta, and Cyprus–has said a $65-$70 cap is too low and is demanding compensation for the potential loss of Russian oil trade to shipping, according to EU diplomats who spoke to Reuters.
“Crude oil trades lower for a third consecutive week as demand fears, especially from an increasingly locked down China, weigh on sentiment,” Saxo Bank strategists said on Friday.
“The 12-month futures spread in WTI and Brent have both weakened to the lowest backwardation since last December, reflecting a market concerned about recession and a seasonal slowdown in demand hurting the front month contracts,” Saxo Bank added.
By Tsvetana Paraskova for Oilprice.com
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Tsvetana is a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews.