Oil drops as China Covid cases spike, dollar gains ahead of midterms

Oil fell as investors weighed China’s renewed commitment to strict anti-Covid policies, and the dollar rose before US midterm elections.
 

West Texas Intermediate futures dropped toward $91 a barrel, after easing almost 1% in the week’s opening session as China reaffirmed its commitment to Covid Zero, including demand-sapping movement curbs and lockdowns. On Monday, more than 7,000 local cases were reported in the world’s largest crude importer, the highest daily number in more than six months.

A Bloomberg gauge of the US dollar halted a two-day loss as investors awaited midterm elections, with voters heading to the polls to decide control of both chambers of Congress, the governorship in 36 states, and other local races. Ahead of the contests, President Joe Biden ordered the release of millions of barrels of crude from strategic stockpiles to help rein in gasoline prices.

Crude has slumped by about a quarter from its June highs as signs of a global slowdown, tighter monetary policy, and a strong US dollar weighed on prices. In addition, oil traders are watching further curbs on Russian flows from December, and the impact of an OPEC+ supply cut that takes effect this month.

“Oil markets found themselves in a bit of limbo yesterday as the bullishness of China’s possible reopening hit a snag,” said James Whistler, managing director of brokerage Vanir Global Markets Pte in Singapore. Still, “fundamentals remain pointed towards a bullish outlook,” he said, citing the OPEC cut and looming Russian sanctions, which may propel Brent back above $100 a barrel.