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Brent Crude Drops to $101.31 on Rising COVID-19 in China

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The international benchmark for crude oil, Brent crude declined from about $109 a barrel it closed on Friday to $101.31 on Monday during the London trading session as concerns over rising cases of COVID-19 in China weighed on the outlook of the commodity.

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Chinese government was said to have started constructing fences around buildings that accommodated COVID-19 victims to curb the further spread of the virus. However, investors are concerned the measures may not be enough given a series of lockdown restrictions put in place in different cities. Businesses and investors have started predicting a total lockdown that could plunge the world back to the 2020 experience and slow down the global economy.

“Today, China fears are adding to the downside momentum for Asian markets. China has tightened parts of the Shanghai lockdown, including erecting fences around apartment buildings with Covid-19 infected individuals. Meanwhile, residents of the Chaoyang district of Beijing will have to submit to three days of testing to get on top of the omicron outbreak there, with parts of it “sealed” or “controlled,” to paraphrase Bloomberg’s story this morning. Although some parts of China have been under restrictions longer than Shanghai, omicron’s arrival in Beijing would be an ominous development,” Jeffrey Halley, a Senior Market Analyst, Asia Pacific with OANDA stated in an email forwarded to Investors King.

While, the size of the COVID-19 cases is unknown,  continuous restrictions in the world’s largest importer of the commodity and the resumption of crude oil production in Libya‘s closed oil fields could cap oil price increase, even with the sanctions imposed on over 7 million barrels per day of Russian oil import.

Meanwhile, global stock markets extended their declines during the London trading session on Monday on the back of the U.S. Federal Reserve’s projected rates increase. Stoxx 600 Europe index lost more than 2% while S&P 500 dipped by 1%. The cryptocurrency space plunged further.

Bonds and the U.S. Dollar jumped ahead of Federal Reserve action.

Is the CEO/Founder of Investors King Limited. A proven foreign exchange research analyst and a published author on Yahoo Finance, Businessinsider, Nasdaq, Entrepreneur.com, Investorplace, and many more. He has over two decades of experience in global financial markets.

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Crude Oil

Libyan Oil Field and Gas Link to Italy Reopen After Protesters Withdraw

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Following a brief interruption, operations at an oil field in western Libya and a natural gas link to Italy have resumed as protesters retreated from the facilities.

The demonstrators withdrew after receiving assurances from the government regarding their demands.

The Wafa oil field, which typically produces between 40,000 to 45,000 barrels per day, recommenced shipments after a temporary halt prompted by guards’ demands for improved compensation.

Similarly, the gas pipeline connection to Italy is once again operational, according to sources familiar with the situation who preferred anonymity due to the sensitivity of the matter.

Protests disrupting energy infrastructure and output are not uncommon in Libya.

In recent times, demonstrations have frequently disrupted operations, with the significant Sharara oil field experiencing prolonged suspension last month due to similar protests, invoking a force majeure clause in contracts.

The resumption of activities marks a relief for both the Libyan energy sector and Italy, which heavily relies on the natural gas link for its energy needs.

However, the incidents underscore the ongoing challenges faced by Libya in maintaining stability within its vital energy infrastructure amidst socio-political unrest.

Efforts to address the grievances of protesters and ensure sustained operations remain pivotal for the country’s economic well-being and regional energy dynamics.

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Crude Oil

Oil Prices Dip on Monday as Dollar Gains

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Oil prices experienced a downturn, extending losses from the previous session as the U.S. dollar surged against global counterparts to impact market sentiment.

Brent crude oil, against which Nigerian oil is priced, slipped by 0.2% to $81.48 a barrel while U.S. West Texas Intermediate crude (WTI) declined by 0.3% to $76.27 a barrel.

The upward trajectory of the dollar renders oil more costly for holders of other currencies, contributing to the decline in oil prices.

This downward trend follows a week of losses, with Brent declining approximately 2% and WTI falling over 3%.

Market participants attribute these fluctuations to concerns about inflation potentially delaying anticipated cuts to high U.S. interest rates. Such expectations have been suppressing global fuel demand growth.

Analysts observe a retreat in the risk-on sentiment, coinciding with heightened expectations of prolonged interest rates.

Tina Teng, an independent analyst based in Auckland, notes that the recent market rally led by Nvidia has stalled, as elevated rate expectations bolster the U.S. dollar, thereby pressuring commodity prices, including oil.

Despite geopolitical tensions such as the Israel-Hamas conflict and attacks on ships in the Red Sea, which could have traditionally boosted oil prices, the impact remains modest.

Moreover, investors are monitoring developments surrounding Russian oil supply following recent U.S. sanctions on Moscow’s leading tanker group.

Amidst these uncertainties, Qatar’s decision to increase liquefied natural gas production further adds to global energy supplies.

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Crude Oil Dips Slightly on Friday Amid Demand Concerns

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On Friday, global crude oil prices experienced a slight dip, primarily attributed to mounting concerns surrounding demand despite signs of a tightening market.

Brent crude prices edged lower, nearing $83 per barrel, following a recent uptick of 1.6% over two consecutive sessions.

Similarly, West Texas Intermediate (WTI) crude hovered around $78 per barrel. Despite the dip, market indicators suggest a relatively robust market, with US crude inventories expanding less than anticipated in the previous week.

The oil market finds itself amidst a complex dynamic, balancing optimistic signals such as reduced OPEC+ output and heightened tensions in the Middle East against persistent worries about Chinese demand, particularly as the nation grapples with economic challenges.

This delicate equilibrium has led oil futures to mirror the oscillations of broader stock markets, underscoring the interconnectedness of global economic factors.

Analysts, including Michael Tran from RBC Capital Markets LLC, highlight the recurring theme of robust oil demand juxtaposed with concerning Chinese macroeconomic data, contributing to market volatility.

Also, recent attacks on commercial shipping in the Red Sea by Houthi militants have added a risk premium to oil futures, reflecting geopolitical uncertainties beyond immediate demand-supply dynamics.

While US crude inventories saw a slight rise, they remain below seasonal averages, indicating some resilience in the market despite prevailing uncertainties.

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