Futures Movers: Oil ends higher after China COVID worries send prices to lowest intraday level in nearly a week

United States

Oil futures ended higher Monday, with prices scoring their first gain in three sessions after a renewed rise in COVID-19 cases in China and last week’s hotter-than-expected U.S. inflation reading pulled prices to their lowest intraday level in almost a week.

Price action
  • West Texas Intermediate crude for July delivery CL.1, -0.28% CL00, -0.28% CLN22, -0.28% rose by 26 cents, or 0.2%, to settle at $ 120.93 a barrel a barrel on the New York Mercantile Exchange after touching an intraday low of $ 117.47.
  • August Brent crude BRN00, -0.53% BRNQ22, -0.53%, the global benchmark, added 26 cents, or 0.2%, to $ 122.27 a barrel on ICE Futures Europe after a $ 118.93 low. WTI and Brent touched their lowest intraday levels since June 7 on Monday. Prices for both benchmarks hit three-month highs last week.
  • Back on Nymex, July gasoline RBN22, -3.78% shed 3.3% to $ 4.0353 a gallon, continuing a pullback from all-time highs seen last week, while July heating oil HON22, -2.09% lost 1.9% to $ 4.2834 a gallon.
  • July natural-gas futures NGN22, -2.51% shed 2.7% to $ 8.609 per million British thermal units.
Market drivers

Beijing moved to increase testing after a COVID-19 outbreak tied to a nightclub. The outbreak has infected at least 183 people in 15 districts, according to news reports.

Concerns that China will lock down more cities because of an uptick in COVID, as well as the stock market getting “obliterated” on rising interest-rate expectations, hurt the outlook for energy demand, leading to losses in oil prices early Monday, Phil Flynn, senior market analyst at The Price Futures Group, told MarketWatch.

However, concerns over further lockdowns in China appeared to ease Monday afternoon, and the focus for traders “flipped back to tight supply,” he said.

Edward Moya, senior analyst at OANDA, said oil prices moved higher after the Energy Information Administration signaled Monday that the oil market will remain tight for the foreseeable future.

Data from the EIA show 2021 oil and natural-gas industry exploration and development spending was 28% less than the 2015 to 2019 prepandemic five-year average.

Given that, “risk appetite is quickly leaving Wall Street and one of the few trades that is still looking attractive is oil,” Moya told MarketWatch. “You can tell the oil market is very tight as even headlines of a deteriorating COVID outlook in China is not sending crude prices sharply lower.”

Libya’s oil production has been nearly halted due to political protests, with output down by about 1.1 million barrels a day, from an average of 1.2 million barrels a day last year, Bloomberg reported Monday, citing comments from Libyan Oil Minister Mohamed Oun.

Still, U.S. stocks saw another session of heavy losses as a global equity selloff continued in the wake of a Friday consumer-price index reading that showed inflation running at a 40-year high of 8.6% year-over-year in May.

“If the Fed were to raise interest rates considerably more steeply in response and the U.S. economy were to slide into recession, this would also affect oil demand in the world’s largest oil consuming country,” said Carsten Fritsch, commodity analyst at Commerzbank, in a note.

Meanwhile, U.S. President Joe Biden is expected to announced a trip next month to Saudi Arabia, The Wall Street Journal reported late Sunday. That’s “leading to speculation that maybe the Saudis could add more barrels,” said The Price Futures Group’s Flynn, adding that he’s “still very skeptical that they’re going to be that accommodative” toward any U.S. calls for more oil.

A renewed surge by the U.S. dollar on expectations for the U.S. Federal Reserve to ramp up its aggressive monetary tightening efforts was a headwind for crude and other commodities priced in the unit. A stronger dollar makes them more expensive to users of other currencies.

The ICE U.S. dollar index DXY, +0.87%, a measure of the currency against a basket of six major rivals, was up 0.8%.