Oil falls $1 on China COVID surge and firmer dollar

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Oil prices fell on Monday, dragged down by a firmer U.S. dollar while surging coronavirus cases in China dashed hopes of a swift reopening of the economy for the world’s biggest crude importer.

Brent crude futures were down $1.01, or 1.1%, at $94.98 a barrel by 1030 GMT after gaining 1.1% on Friday. WTI crude futures fell $1.11, or 1.3%, to $87.85 after advancing 2.9% on Friday.

“U.S. dollar strength appears to be weighing on oil and the broader commodities complex this afternoon,” said Warren Patterson, head of commodities strategy at ING.

“There probably is also an element where the market got a bit ahead of itself on Friday following an easing in China’s COVID-related quarantine measures.”

Commodities prices rallied on Friday after China’s National Health Commission adjusted its COVID prevention and control measures to shorten quarantine times for close contacts of cases and inbound travelers.

But COVID-19 cases climbed in China over the weekend, with Beijing and other big cities on Monday reporting record infections.

China’s demand for oil from top exporter Saudi Arabia also remained weak, with several refiners having asked to lift less crude in December.

Separately, U.S. Treasury Secretary Janet Yellen on Friday said that India can continue buying as much Russian oil as it wants, including at prices above a G7-imposed price cap mechanism, if it steers clear of Western insurance, finance and maritime services bound by the cap.

Also weighing on oil was dollar strength after comments from U.S. Federal Reserve Governor Christopher Waller, who said on Sunday that the Fed could consider slowing the pace of rate increases at its next meeting, but that should not be seen as a softening in its commitment to lower inflation.

“This leans towards the sticky inflation or recession narrative, which is negative for oil and other risk markets,” said SPI Asset Management managing director Stephen Innes.

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