Crude oil-related exchange traded funds slipped Thursday as Shanghai enacted new COVID-19 lockdown measures, fueling concerns over China’s demand outlook.
On Thursday, the United States Oil Fund (NYSEArca: USO), which tracks West Texas Intermediate crude oil futures, and the United States Brent Oil Fund (NYSEArca: BNO), which tracks Brent crude oil futures, were both down 1.0%. Meanwhile, WTI crude oil futures were down 0.5% to $121.5 per barrel, and Brent crude futures dropped 0.6% to $122.9 per barrel.
Shanghai reinstated restrictions on movement to help quarantine the spread of new COVID-19 cases, contributing to greater uncertainty over a fuel demand recovery in one of the world’s biggest oil-consuming economies, Bloomberg reported. The financial hub only just recently lifted a two-month shutdown at the start of June, but Beijing’s zero-tolerance COVID-19 policy has contributed to swift government reaction to any new infection clusters.
“Crude futures are also in an overbought condition and a corrective phase is definitely due,” Dennis Kissler, senior vice president of trading at BOK Financial, told Bloomberg. “Prices have to take a breather at some time and the new possible COVID issues in China are assisting this morning.”
Crude oil prices have surged this year following a global economic rebound from the COVID-19 pandemic, and the Russia-Ukraine war has further contributed to supply-side problems, leading to tightening global supplies.
Key OPEC member, the United Arab Emirates, warned that prices are still “nowhere near” their peak and even added that China’s impending recovery may strain the market further.
Furthermore, the peak summer gasoline demand season in the U.S. could bolster crude oil prices ahead.
“I think higher energy prices are here for the balance of the year unless we see some breakthrough that allows a significant amount of crude oil to return to the market,” Andrew Lipow, president of Lipow Oil Associates, told Reuters.
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