US oil prices have fallen to their lowest level since December 2021 on concerns that protests in China against Covid-19 lockdowns will dent demand.
West Texas Intermediate crude oil futures, the US benchmark, slid 2.7% on Monday to trade close to $74 a barrel, a level last reached in December 2021. Futures for Brent crude, the global benchmark, dropped 2.9% to trade close to $81 a barrel. That’s its lowest level since January.
Global oil prices have fallen about 35% since June as strict coronavirus restrictions in China have kept demand weak, and as some of the world’s major economies have signaled they are heading toward a recession.
That’s helped push down gasoline prices for American drivers.
The national average cost of a gallon of gas is now $3.55, down 0.3% from a day ago and by 5.7% from last month, according to the AAA. Crude oil prices are the biggest driver of US gasoline prices, according to the Energy Information Administration.
Thousands of protestors took to the streets across China over the weekend in a rare series of demonstrations against the country’s zero-Covid strategy.
One of the triggers for the protest was a deadly apartment fire in the Xinjiang region. Videos of the incident appeared to show lockdown measures had delayed firefighters from reaching the victims.
Global oil prices have fallen despite the OPEC+ group of major oil producers slashing production by 2 million barrels per day starting this month, its biggest cut since the start of the pandemic. OPEC+ is due to meet again on Sunday.
Falling fuel prices have spelled relief for millions of households and businesses worldwide who’ve struggled to pay soaring energy bills since Russia invaded Ukraine in late February.
Russian price cap looms
But markets remain jittery as the West tries to agree a price cap on Russian oil. Major developed economies are wrangling over the level of the cap, which is intended to limit Moscow’s revenues without seriously disrupting global oil supply.
Media reports last week indicated that Russian oil could be capped at between $65 and $70 per barrel, close to its current market price. Yet that level would inflict minimal pain on Russia.
But if Western powers decide to set the price lower, it could inflame the global energy crisis, particularly if Russia retaliates. Moscow could decide to cut production by more than expected, driving up prices and stoking global inflation.
“It’s looking increasingly likely to be done at a level that doesn’t particularly hinder Russia’s ability to sell crude — which is contributing to the drop in oil prices — or put its buyers in an uncomfortable position,” Craig Erlam, senior markets analyst at Oanda, wrote in a Monday note.
The price limit is due to take effect on December 5, the same day that the European Union’s embargo on seaborne Russian crude oil imports comes into force.
Deutsche Bank analysts said Monday that they expected the EU embargo to create a “moderate supply risk” between January and March next year, though the impact would likely be “blunted by Russia’s self-interest in maximizing export revenue.”
— Julia Horowitz and Jessie Yeung contributed reporting.