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Oil Prices Fall As Worries About a Pandemic in China and a Worldwide Economic Downturn Weigh on Investors’ Minds

Oil Prices Fall As Worries About a Pandemic in China and a Worldwide Economic Downturn Weigh on Investors' Minds

Oil prices settled lower on Wednesday as traders weighed concerns over a surge in COVID-19 cases in China, the world’s top oil importer, against the chances easing pandemic restrictions in the country will boost fuel demand.

Brent crude futures fell $1.07, or 1.3%, to settle at $83.26 a barrel, while U.S. West Texas Intermediate crude futures settled at $78.96 per barrel, down 57 cents, or 0.7%.

China has said it will stop requiring inbound travellers to quarantine from Jan. 8, a major step towards relaxing stringent curbs on its borders. However, Chinese hospitals have been under intense pressure due to a surge in COVID infections.

Oil markets were also buffeted by expectations of another interest rate hike in the United States, as the U.S. Federal Reserve tries to limit price rises in a tight labor market.

Market participants noted that trading volumes this week are expected to be lighter than usual as the end of the year approaches, creating more volatility in oil prices.

“My sense is the general risk-off mood has weighed on the oil prices, in a market with thin liquidity,” said UBS analyst Giovanni Staunovo.

Wednesday’s declines also followed three straight sessions of higher settlements on both crude benchmarks. Prices were at their highest in three weeks on Tuesday, as a cold snap across the U.S. forced shutdowns at major production sites and refineries at the weekend.

“We have seen a strong rebound over the last few weeks and that’s being pared a little today but the narrative remains unchanged,” said Craig Erlam, senior market analyst at OANDA.

“Next year brings immense uncertainty and plenty of potential upside risk for prices from the China reopening to lower Russian output and further OPEC+ cuts,” Erlam said.

Russia said it aims to ban oil sales from Feb. 1 to countries that abide by a G7 price cap imposed on Dec. 5, although details of how the ban would work were unclear.

U.S. crude oil inventories fell last week while gasoline and distillate stocks rose surprisingly, according to market sources citing American Petroleum Institute figures on Wednesday.

The U.S. government will weekly inventory figures at 10:30 a.m. EST on Thursday.

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