Oil sinks as Chinese developer downgrades add to fears about demand outlook

Oil storage containers are seen, amid the coronavirus disease (COVID-19) pandemic, in Los Angeles, California, United States, April 7, 2021. REUTERS / Lucy Nicholson / File Photo

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  • Governments reimpose restrictions to limit the spread of Omicron
  • Fitch downgrades Evergrande and Kaisa to “restricted default”
  • BioNTech and Pfizer support three-shot vaccine against Omicron

Dec. 9 (Reuters) – Oil prices fell on Thursday amid fears about the economic outlook for the world’s largest oil importer following the downgrading of two Chinese property developers and after some governments took measures to combat the Omicron variant of the coronavirus.

Brent crude futures fell $ 1.01, or 1.3%, to $ 74.81 per barrel at 12:05 p.m. EDT (5:05 p.m. GMT), falling from a high of 76. $ 70 per session. US West Texas Intermediate (WTI) crude futures fell $ 1.00, or 1.4%, to $ 71.36 after peaking at $ 73.34.

Rating agency Fitch downgraded property developers China Evergrande Group and Kaisa Group to ‘narrow default’ status on Thursday, saying they had defaulted on offshore bonds, while a source said Kaisa had started to work on restructuring its $ 12 billion offshore debt. Read more

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“The … news … exacerbates fears about China’s GDP growth and could ultimately impact the oil buying appetite of the world’s largest crude customer,” said Louise Dickson, analyst at Rystad Energy.

British Prime Minister Boris Johnson on Wednesday imposed tighter COVID-19 restrictions on England, saying people should work from home where possible, wear masks in public places and show vaccine passes COVID-19 to access certain events and locations. Read more

“Although laboratory tests have shown that the Pfizer vaccine has a neutralizing effect on Omicron (…) new measures are being introduced to try to stop the spread of the virus,” said Tamas Varga of the oil brokerage PVM.

Denmark is also planning new restrictions, including closing restaurants, bars and schools, while China has suspended group tourist trips from Guangdong. Read more

South Korea has seen record infections while cases remain high in Singapore and Australia. Read more

The number of Americans filing new jobless claims fell to their lowest level in over 52 years last week as labor market conditions continued to tighten amid an acute shortage of workers, according to new data released by the US Department of Labor.

“The oil market doesn’t always respond well to good economic news either, as it could prompt the Federal Reserve to tighten monetary policy,” said John Kilduff, partner at Again Capital LLC in New York City.

The markets were supported by comments from BioNTech and Pfizer that a three-shot course of their COVID-19 vaccine could protect against infection with the Omicron variant. Read more

The Omicron outbreak triggered a 16% drop in Brent prices from November 25 to December 1. More than half of the decline was recouped this week, but analysts say a further recovery may be limited until Omicron’s impact is clearer.

US inventory data released Wednesday also weighed on prices.

Data from the Energy Information Administration (EIA) showed that crude inventories fell by 240,000 barrels last week, far less than analysts in a Reuters poll had predicted, with stocks at the delivery center of Cushing in Oklahoma increasing by 2.4 million barrels.

Fuel inventories also increased by 6.6 million barrels combined, the data showed.

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Additional reporting by Adhmad Ghaddar in London, Sonali Paul in Melbourne and Muyu Xu in Beijing Editing by David Goodman, Kirsten Donovan and David Gregorio

Our Standards: Thomson Reuters Trust Principles.

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