Oil drops on demand concerns; IEA sees energy crisis enduring

Oil extended losses as a Covid-19 resurgence in China added to concerns about a global economic slowdown, with the international Energy Agency warning the worst of the energy crisis may be ahead.

West Texas Intermediate lost over 1 percent to trade below $103 a barrel. Bearish sentiment has filtered through commodities as rising virus cases in China and a looming US inflation print stoke concerns about the demand outlook. A rising dollar has added to the pressure, making oil less attractive to investors.

Crude has tumbled since early June on escalating fears the US may be heading for a recession as central banks aggressively raise rates to combat inflation. Nations are experiencing the first global energy crisis and “we might not yet have seen the worst of it,” IEA Executive Director Fatih Birol said in Sydney.

“Recessionary fears remain the dominant theme for the crude complex,” said Vandana Hari, founder of analysis firm Vanda Insights in Singapore. The market is facing the challenge of balancing changing demand expectations against the supply outlook, which is likely to be a volatile process, she added.

President Joe Biden is scheduled to visit Saudi Arabia this week during a tour to the Middle East as he seeks to tame high energy prices that have roiled the global economy. The US believes Opec has room to raise production should Biden’s upcoming visit to the region yields any agreements.

The market has tightened this year, in part due to upended trade flows from Russia after its invasion of Ukraine. US Energy Secretary Jennifer Granholm is set to meet with counterparts from the Quad group of nations during a visit to Sydney, and will use talks to rally support for a cap on Russian oil prices.

Close to 30 million people in China are under some form of movement restrictions as more cities and counties seek to quell resurgent Covid-19 outbreaks. The nation reported 347 new cases for Monday.