Oil fell more than $ 2 a barrel on Monday as rising COVID-19 outbreaks in Beijing dampened hopes for a recovery in Chinese demand, while worries about more interest rate hikes to control rampant inflation have added further pressure. West Texas Intermediate futures fell nearly 2 percent to trade below $ 119 a barrel amid wider sell-offs in the market. US inflation accelerated to a new 40-year high last month, raising the possibility of more aggressive interest rate hikes by the Federal Reserve. China is re-imposing the virus as cases rise, just weeks after significant easing in key cities such as Shanghai. Beijing’s most populous Chaoyang district has announced three rounds of mass testing to quell a “wild” COVID-19 epidemic. “The current fall in prices is exacerbated by warnings of a ‘wild’ spread of COVID in Beijing by officials, casting doubt on the immediate recovery of demand,” said Tamas Varga, a PVM oil broker. Oil soared in 2022 as Russia’s invasion of Ukraine exacerbated supply concerns and as oil demand recovered from lockdowns due to COVID. Brent hit $ 139, the highest level since March 2008, and both oil benchmarks rose more than 1 percent last week. The war has triggered inflation, increasing the cost of everything from food to fuel. Retail gasoline prices in the US have repeatedly broken records and recently reached $ 5 a gallon. Supply remains limited, with OPEC and its allies unable to fully deliver on committed production increases due to a lack of production capacity for many producers, sanctions in Russia and production in Libya nearly half due to unrest. “Supply / demand momentum continues to support prices,” said Jeffery Halley of OANDA Stock Exchange, who said a large sell-off of oil was unlikely “unless US markets move toward price in a full recession.” The United States has repeatedly called on OPEC to use more crude oil to help ease rising gas prices and warmer inflation in recent decades. Shares fell in Asia and suffered early losses in Europe as Friday’s data, which showed the US consumer price index rose 8.6% last month, continued to weigh on financial markets. The data puts the markets on alert that the US Federal Reserve may tighten its policy for too long and cause a sharp economic slowdown. The Fed’s next political decision is on Wednesday.
