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By Arathy Somasekhar
HOUSTON (Reuters) – Benchmark brent crude fell from $7 to below $100 a barrel on Tuesday on a stronger dollar, COVID-19 brakes are undermining demand from China’s most sensible crude importer and raising fears of a global economic slowdown.
The sharp drop follows a month of volatile trading in which investors sold oil positions, fearing that competitive interest rate hikes to curb inflation could cause an economic slowdown that will reduce the floor under the foot of oil demand.
Brent futures were down $6. 87, or 6. 4%, at $100. 22 a barrel at 12:15 a. m. m. EDT (16:15 GMT). West Texas Intermediate crude fell $7. 36, or 7%, to $96. 74.
Oil is facing excessive tension “as the defensive posture continues with customer sentiment still depressed and a resurgence of COVID in China,” said Dennis Kissler, senior vice president of operations at BOK Financial.
A record dollar prompted more sales sell-offs, Kissler added. The value of oil is in US dollars, so a more powerful dollar makes the commodity more expensive for holders of other currencies.
The dollar index, which tracks the currency against a basket of six counterparts, rose last Tuesday to 108. 56, its highest point since October 2002. Investors tend to see the dollar as a haven in times of market volatility.
Investors have gotten rid of oil-related derivatives at one of the fastest paces of the pandemic era as recession fears intensify. Hedge Budget and other fund managers sold 110 million barrels in the six biggest oil-related futures and features in the previous week. until July 5.
Volatility close to almost in Brent and WTI is at its highest point since the beginning of April. Lower liquidity effects in a more volatile market with drastic value fluctuations.
New COVID-19-related restrictions in China have also hit oil prices, with several Chinese cities adopting new restrictions, ranging from business closures to broader closures, in a bid to curb new infections of a highly infectious subvariant of the virus.
U. S. President Joe Biden will advocate for an increase in OPEC oil production when he meets with Gulf leaders in Saudi Arabia this week, White House national security adviser Jake Sullivan said Monday.
However, resource experts and industry experts have questioned whether, with current production of at least 10. 5 million barrels a day, Saudi Arabia has another 1. 5 million bpd up its sleeve that can be brought online temporarily and sustainably.
U. S. Treasury Secretary Janet Yellen is in Asia to talk about tactics to tighten sanctions against Moscow, adding a cap on Russian oil costs to restrict the country’s profits and reduce energy costs.
The executive director of the International Energy Agency (IEA), Fatih Birol, said any cap on Russian oil costs comes with subtle products.
Western sanctions opposing Russia over the war in Ukraine, which Moscow calls a “special army operation,” have disrupted industrial flows of crude and fuel.
The Organization of the Petroleum Exporting Countries (OPEC) forecasts that global oil demand will grow through 2. 7 million bpd in 2023, slower than in 2022. However, unused capacity within OPEC is low, with most industries pumping at full capacity.
(Additional reporting via Ahmad Ghaddar in London, Florence Tan in Singapore and Emily Chow in Kuala Lumpur editing via Marguerita Choy, David Goodman and Paul Simao)