Oil slipped on Tuesday, pressurised by Covid-19 lockdowns in China which could weigh on demand, but finding support from a possible European oil embargo on Russia over its invasion of Ukraine.
Beijing, reporting dozens of new cases daily, is mass-testing residents to avert a lockdown similar to Shanghai’s over the past month. The capital’s restaurants were closed and some apartment blocks were sealed.
Brent crude was down $1.22, or 1.1%, at $106.36 a barrel at 8.12am GMT. US West Texas Intermediate (WTI) crude dropped 50c, or 0.5%, to $104.67.
“The positive driver has been the EU embargo and whether that will be announced,” said Commonwealth Bank commodities analyst Vivek Dhar. “Your negative driver is Chinese Covid lockdowns. They’re both very important thematics.”
Oil has hit multiyear highs this year, with Brent reaching $139 in March, the highest since 2008, after Moscow’s invasion of Ukraine worsened supply concerns that were already fuelling a rally.
The prospect of EU sanctions on Russia lent support. The European Commission is expected to finalise on Tuesday work on the next package of EU sanctions against Russia, which would include a ban on buying Russian oil.
“A potential EU-wide oil embargo could significantly undermine the already diminishing availability of Russian barrels,” said Tamas Varga of oil broker PVM.
Also in focus will be the latest round of US inventory and supply reports. Five analysts polled by Reuters on average expect US crude inventories fell by 1.2-million barrels in the week to April 29.
The American Petroleum Institute industry group issues its inventory report at 8.30pm GMT, followed by government figures from the energy information administration on Wednesday.