By Barani Krishnan
Investing.com -- Oil prices fell for a second straight day on Wednesday as new COVID-related deaths in China appeared to absorb the market’s attention, raising questions about near-term demand in the world’s No.2 oil importer.
A whopping 8-million barrel drawdown in U.S. crude reported by the Energy Information Administration, or EIA, for last week — double the build expected by analysts — was ditched aside by traders, despite the data helping a barrel rise about $1 in pricing minutes after the report surfaced.
The EIA also reported blow-out numbers for consumption of distillates, which are largely refined into diesel, and a decent draw for gasoline versus forecasts.
Still, crude prices were down about 2% by Wednesday noon in New York, adding to the previous session’s 5% slide that ended a four-day rally after the International Monetary Fund slashed its 2022/23 world growth forecasts due to inflation and other economic challenges triggered by Russia’s invasion of Ukraine.
COVID-related deaths in Shanghai, reported to be three on Monday and another seven on Tuesday, have reinforced fears that the pandemic might be returning in a bigger way to China’s second-largest city that has been in lockdown for weeks now.
“The downward revisions to growth forecasts from the IMF and World Bank in recent days (and) the war in Ukraine and lockdowns in China … will weigh on demand this year,” said Craig Erlam, analyst at online trading platform OANDA.
Brent, the London-traded global benchmark for crude, was down $2.28, or 2.1%, at $104.97 per barrel by 12:10 PM ET (16:10 GMT). The session low was $104.67.
New York-traded West Texas Intermediate, or WTI, the benchmark for US crude, lost $1.84, or 1.8%, to trade at $100.21, after briefing below the $100 support earlier with a session low at $99.89.
In Shanghai, officials pleaded with residents to cooperate, after some people, weary from weeks of lockdown rules, refused to adhere to testing procedures for the virus amid a rare burst of public anger at the city’s pandemic controls.
Chinese authorities said the seven who died on Tuesday were aged between 60 and 101 and unvaccinated. They also had preexisting health conditions.
A slew of Chinese economic data this week confirmed that the world's second-largest economy has sputtered as the government’s zero-Covid policy clashes with the biggest outbreak of the virus in two years in the second largest economy.
Among these were retail sales, which tumbled 3.5% in the year to March, the worst annual drop since 2020; unemployment, which has risen to 5.8%, above the government's target of 5.5% and the worst since May 2020; and a general slowing down of industrial production.
Aside from China, oil and commodity markets have also been rattled in the past two days by fears that aggressive rate hikes planned by the Federal Reserve to combat the worst U.S. inflation in 40 years could lead to a recession in the No. 1 economy.
The positive stockpiles data cited by the EIA only gave a brief respite to the price downtrend of the past two days.
The EIA reported that crude stockpiles fell by 8.02 million barrels for the week ended April 15. Analysts tracked by Investing.com had predicted a rise of 2.47 million instead, to add to the previous week’s build of 9.34 million.
Adding to that crude decline was the release of a further 8.1 million barrels from the U.S. Strategic Petroleum Reserve, or SPR, by the Biden administration which is trying to relieve the supply deficit in global oil markets caused by the West’s sanctions on Russia. With that release, SPR stockpiles were at their lowest since February 2002, the EIA said.
Gasoline inventories fell 761,000 barrels versus analysts’ expectations for a draw of 976,000. In the previous week, gasoline saw a decline of 3.65 million barrels.
Stockpiles of distillates tumbled by 2.66 million barrels, adding to the previous week’s 2.9 million-barrel draw. Analysts had forecast a decline of just 829,000 barrels for last week.