Oil News: Oil tumbles on global economic worries and strong dollar

Oil prices fell more than 1% on Tuesday, extending steep declines from the previous day as coronavirus lockdowns in major oil importer China, a strong dollar and growing recession risks stoked concerns over the outlook for global demand.

Brent crude fell $1.31, or 1.2%, to $104.63 at 02:16 GMT after falling to $103.19.

U.S. West Texas Intermediate crude fell $1.25, or 1.2%, to $101.84 a barrel after hitting an intraday low of $100.44.

On Monday, both benchmarks posted their biggest daily percentage decline since March, falling 5% to 6% since March.

The drop in oil prices mirrored trends in global financial markets as investors dumped riskier assets on concerns about rising interest rates and their impact on economic growth.

The dollar hit near 20-year highs, making oil more expensive for holders of other currencies.

“The COVID situation in China, rising rates and growing recession risks are not helping risky assets,” said Warren Patterson, head of commodities research at ING.

The latest data showed China’s export growth slowed to single digits, the weakest in nearly two years, as the country extended shutdowns to curb the spread of COVID-19.

Oil prices rose last week after the European Commission proposed a phased embargo on Russian oil. However, approval was delayed due to requests for exemptions and concessions from Eastern European members.

A new version, currently being drafted, is expected to remove a ban on European tankers carrying Russian oil, after pressure from Greece, Cyprus and Malta, an EU source said.

“Obviously (EU) members are struggling to reach an agreement, which suggests we could see further watering down of the proposed package,” Patterson said.

Financial markets are also heeding fears that some European economies could suffer if Russian oil imports were further reduced or if Russia were to retaliate by cutting gas supplies.

German officials are quietly preparing for any sudden stoppage of Russian gas supplies with a contingency plan that could include taking over critical companies, Reuters reported.

Halting Russian gas supplies to Germany would trigger a deep recession and cost half a million jobs, a senior economist said in an interview published on Tuesday.

Hungary also reaffirmed its position that it will not accept a new round of proposed sanctions against Russia until its concerns are resolved.

In the United States, U.S. inventories of crude, distillates and gasoline likely fell last week, a preliminary Reuters survey of weekly data showed on Monday.

Steve R. Hansen