Title: Oil drops on China COVID worries

Jul 11, 2022 02:25AM ET

By: AnalysisWatch

Oil prices fell in volatile trade on Monday, erasing some gains from the previous session as markets braced for fresh COVID mass tests in China that could potentially hurt demand, a concern that outweighed ongoing worries about tight supply.

Brent crude futures fell $1.02, or 1%, to $106.00 at 0605 GMT after rising 2.3% on Friday.

U.S. West Texas Intermediate (WTI) crude futures fell $1.38, or 1.3 percent, to $103.41, erasing a 2 percent gain from Friday.

Trading was hit by a public holiday in parts of Southeast Asia, including the oil trading hub of Singapore.

The market was rocked by news that the first case of a highly transmissible Omicron sub-variant had been discovered in Shanghai, China, and that the number of new cases in the country's largest city had risen to 63 from 52 the previous day.

Traders feared the discovery of the new sub-variant and the highest number of daily new cases in Shanghai since May could lead to another round of mass testing, affecting fuel demand.

Both benchmark crude contracts traded lower in early trade on Monday, then turned positive before falling back after the latest COVID news from China.

In an effort to ease the tight supply situation, US President Joe Biden will hold talks with Saudi leaders this week to mend relations with the world's largest oil producer following the 2018 killing of Washington Post journalist Jamal Khashoggi.

The market remains nervous over plans by Western countries to cap Russian oil prices. President Vladimir Putin warned that further sanctions could lead to "catastrophic" consequences in the global energy market.

Another major factor that traders will be watching is maintenance work on the Nord Stream 1 pipeline, the largest single pipeline carrying Russian gas to Germany, which is scheduled to take place from 11 to 21 July. Governments, markets and businesses are concerned that the shutdown could be extended due to the war in Ukraine.

If the pipeline cannot come back online on 22 July as planned, it could lead to a collapse in gas demand in Europe, triggering an economic downturn and affecting oil demand, according to Stephen Innes, managing partner at SPI Asset Management