Oil drops amid fears over slowing China demand

Two Libyan ports stopped loading oil and Russia warned further bans may push prices to "significantly exceed" historic highs. PHOTO: NYTIMES

TOKYO (REUTERS) - Oil prices dropped on Monday (April 18) as worries over slowing demand in China prompted investors to take profits on gains made earlier in the day on concerns over tight supply and the deepening Ukraine crisis.

Brent futures were down 0.7 per cent at US$110.90 a barrel at 3.42pm Singapore time, sliding from its highest since March 30 of US$113.80 hit earlier in the session.

United States West Texas Intermediate (WTI) futures also slipped 0.7 per cent, to US$106.22, having risen as high as US$108.55, the highest since March 30.

China’s economy slowed in March as consumption, real estate and exports were hit hard, taking the shine off faster-than-expected first-quarter growth numbers and worsening an outlook already weakened by Covid-19 curbs and the Ukraine war.

The country refined 2 per cent less oil in March than a year earlier, with throughput falling to its lowest level since October as a surge in crude prices squeezed margins and tight lockdowns hurt fuel consumption.

“Some Asian investors booked profits as they became worried about slowing demand in China,” said Rakuten Securities commodity analyst Satoru Yoshida.

Last Thursday, a day before Easter weekend holidays, both Brent and WTI climbed more than 2.5 per cent on news that the European Union might phase in a ban on Russian oil imports.

EU governments said last week that the bloc’s executive was drafting proposals to ban Russian crude, but diplomats said Germany was not actively supporting an immediate embargo.

Those comments came before tensions grew in the Ukraine crisis, with the authorities reporting multiple explosions in western and southern Ukraine on Monday as Russian forces claimed near full control of the strategic southern port city of Mariupol following almost two months of bloody fighting.

“Continued war between Russia and Ukraine with no signs of a ceasefire fuelled supply fears, especially as demand is expected to pick up as driving season nears in the Northern Hemisphere,” said Sunward Trading chief analyst Chiyoki Chen.

The International Energy Agency had warned that roughly three million barrels per day of Russian oil could be shut in from May onwards due to sanctions, or buyers voluntarily shunning Russian cargoes.

Russian oil production has continued to slide in April, declining by 7.5 per cent in the first half of the month from March, the Interfax news agency reported on Friday.

Adding to pressure, Libya halted oil production from its El Feel oilfield on Sunday and two sources at Zueitina oil port said exports there had been suspended after protesters calling for Tripoli-based Prime Minister Abdulhamid al-Dbeibah to resign took over the sites.

US oil production forecasts, however, are being revised upwards despite labour and supply chain constraints, as higher prices spur more drilling and well completion activity, according to industry experts.

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