Oil prices slid on Wednesday as COVID-19 cases in China continued to climb, sparking worries of lower fuel demand in the world’s top crude importer that outweighed concerns about an escalation of geopolitical tensions and tighter oil supply.
U.S. West Texas Intermediate (WTI) crude futures fell $1.61, or 1.85%, to $85.24 a barrel.
Oil prices settled higher on Tuesday after oil supply to parts of Eastern and Central Europe via a section of the Druzhba pipeline was temporarily suspended, according to oil pipeline operators in Hungary and Slovakia.
The disruption came concurrent with an explosion in a village in eastern Poland near the Ukraine border that killed two people and raised the possibility that the Russian-Ukraine conflict could spill over.
But after the initial “knee-jerk rally in oil prices, the tepid market follow-through reflects the significant prudence that will be taken to avoid an escalation,” said Stephen Innes, managing partner at SPI Asset Management.
U.S. President Joe Biden’s comments that the missile was probably not fired from Russia also helped to ease immediate escalation worries, Innes said.
In China, rising COVID-19 cases are weighing on sentiment despite the hopes raised by easing virus restrictions this week.
That has dampened the oil demand growth outlook, with the International Energy Agency (IEA) forecasting demand growth to slow to 1.6 million bpd in 2023 from 2.1 million bpd this year.
Earlier, the Organization of the Petroleum Exporting Countries (OPEC) cut its forecast for 2022 global oil demand growth for a fifth time since April citing mounting economic challenges.
The safe-haven greenback also firmed as markets took stock of geopolitical risks. A stronger U.S. dollar makes dollar-denominated commodities more expensive for holders of other currencies and tends to weigh on oil and other risk assets.
Industry data showing a bigger-than-expected drop in U.S. crude stockpiles provided some support to oil prices.
U.S. crude oil inventories fell by about 5.8 million barrels for the week ended Nov. 11, according to market sources citing American Petroleum Institute figures.
By comparison, seven analysts polled by Reuters estimated on average that crude inventories dropped by about 400,000 barrels.
Official U.S. inventory data from the Energy Information Administration is due at 10:30 a.m. EST (1530 GMT).
In the United States, producer prices increased less than expected in October, suggesting inflation was starting to ease, which may allow the Federal Reserve to slow its aggressive pace of interest rate hikes.