Oil drops as economic worries, strong dollar weigh
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LONDON -Oil prices fell in volatile trade on Tuesday as the market balanced impending European Union sanctions on Russian oil with demand concerns related to coronavirus lockdowns in China, a strong dollar and growing recession risks.
Brent crude was down 61 cents, or 0.5%, at $105.33 a barrel by 1404 GMT, while U.S. West Texas Intermediate crude fell 50 cents, or 0.4%, to $102.59 a barrel.
Both contracts fell by more than $2 per barrel earlier in the session.
"The combination of COVID-related lockdowns in China and worldwide interest rate increases to battle inflation put equity investors on the back foot, strengthened the dollar and significantly raised concerns of economic slowdown," said Tamas Varga of oil broker PVM.
Financial markets are also heeding concerns that some European economies could suffer distress if Russian oil imports were curtailed further, or if Russia retaliated by cutting off gas supplies.
An abrupt halt of Russian gas exports could see economies in emerging Europe, central Asia and north Africa slide back to pre-pandemic GDP levels, the European Bank for Reconstruction and Development (EBRD) warned on Tuesday.
Delays to the EU Commission's proposal to ban oil imports from Russia have also weighed on futures prices.
But French European Affairs Minister Clement Beaune said on Tuesday that EU members could reach a deal this week on Russian oil sanctions, despite vocal critic Hungary digging in its heels over the planned embargo.
In addition to the recent G7 gradual import ban on Russian oil, Japan, which obtained 4% of its oil imports from Russia last year, has agreed to phase out Russian oil purchases. But the timing and method have yet to be decided.
Supply concerns provided some price support, with bullish comments from the Saudi and UAE energy ministers pushing Brent and WTI up by over $1/bbl earlier in the session.
"Oil prices benefited from ... a drop in oil inventories in April, primarily driven by middle distillates, in Europe," said UBS analyst Giovanni Staunovo said.
European refiners' middle distillate stocks fell by 15.4% on the year in April, and by almost 3% from March, Euroilstock data showed on Tuesday.
In the United States, crude, distillates and gasoline inventories likely fell last week, a preliminary Reuters poll of weekly data showed on Monday. [EIA/S]
