Oil prices slip on China covid curbs, potential rate hikes

Oil prices edged lower, weighed down by restrictions to curb the spread of coronavirus in China. Gold prices ticked up as a softer dollar underpinned greenback-denominated bullion.

Shreyansi Singh

Updated Sep 12, 2022, 15:21 IST

Representative Image.

Photo : iStock

KEY HIGHLIGHTS

All eyes on U.S. inflation data
China doubles down on zero-COVID policy
Fed’s Waller backs big interest rate hike

Oil prices declined on Monday as curbs to restrict the spread of the coronavirus in China overshadowed the glum outlook for global fuel demand.

Prices were relatively steady last week as gains on the back of a supply cut by the Organization of the Petroleum Exporting Countries (OPEC) and allies including Russia were nullified by lockdowns in top importer China.

China’s oil demand is on track to contract this year, for the first time in two decades as Beijing doubled down on its zero-COVID policy, weighing on fuel consumption.

Central banks across the world are prepared to hike their interest rates further to rein in inflation. This could underpin the U.S. dollar and make greenback-denominated oil more expensive.

Global oil prices may rebound towards the end of the year - supply is expected to tighten further when a European Union embargo on Russian oil takes effect on Dec. 5.

Oil prices may recoup towards the latter half of this year as further supply tightening is expected with a European Union restriction on Russian oil kicking in from December 5. The G7’s price cap on Russian oil would curb insurance, brokering and finance to oil cargoes priced above a limit that hasn’t been set yet.

Moscow has called its actions in Ukraine "a special operation". Ukraine's military says its forces have retaken over 3,000 sq km in eastern Ukraine. Russian troops have retreated in Izyum and Kupiansk which would enable them “to regroup” according to the country’s defence ministry.

Gold edges up on subdued dollar, all eyes on U.S. inflation data

Gold prices rose on Monday, underpinned by a retreating dollar, while investors awaited U.S. inflation data for further cues on the Federal Reserve’s roadmap on interest rate hikes.

Markets have ramped up their expectations for a 75-basis-point rate hike this month. Federal Reserve Governor Christopher Waller echoed recent sentiments from his colleagues, saying he expects a big interest rate increase later this month.

He also backed a data-dependent approach and said policymakers should stop trying to guess the future.

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