OIL FUTURES: Brent falls below $100 as China pandemic response weighs on demand outlooks

An overnight crude prices slide accelerated in midday New York trading July 12, with ICE Brent futures again falling below the $100/b level as Chinese lockdown concerns dampened global demand outlooks.

At 1619 GMT, NYMEX August WTI was down $7.72 at $96.37/b and ICE September Brent was $7.32 lower at $99.78/b.

"Oil prices have once again tumbled below $100/b as demand concerns take center stage in global markets," TD Securities analysts said in a July 12 note.

Chinese authorities discovered the first case of a highly transmissible omicron subvariant BA.5.2.1 in Shanghai over the weekend, with new cases reaching the highest level since late May. More than half of all districts in Shanghai will start three-day mass testing July 12 in a bid to tackle infections.

Several other Chinese cities, including Xi'an and Lanzhou, have already placed movement restrictions on residents in response to rising cases.

"Recently, Chinese President Xi Jinping had firmly rejected any departure from the country's strict zero-Covid strategy. This means downside risks to oil demand in China," Carsten Fritsch, commodity analyst at Commerzbank, said in a daily note July 12.

Brent futures touched a session low $99.47/b midmorning, but later was trading around the $100/b level. The front-month Brent contract last traded below $100/b intraday on July 7 but has not settled below that level since April 11.

NYMEX August RBOB traded down 19.47 cents at $3.2675/gal and August ULSD declined 13.99 cents to $3.6282/gal.

Crude prices have also seen pressure from a strengthened dollar, which rose to fresh 20-year highs July 11 amid escalating concerns over the health of the global economy.

"We believe that the firm US dollar, which has now almost reached parity with the euro, is weighing on prices," Commerzbank said in a July 12 note "The combination of high energy prices and rising interest rates is fueling concerns about a recession that would have a serious impact on oil demand."

In Europe where recession fears are the strongest, the euro almost hit parity with the dollar early July 12, with the exchange markets factoring in a hit to the trade bloc's growth as it faces a potential shut-off of Russian gas flows.

US President Joe Biden is traveling to Saudi Arabia July 15-16 to "strengthen a strategic partnership" and is expected to press for increased Saudi Arabian oil production in an effort to tame high oil prices and inflation at home, media reports said.

"Little hope is being assigned to Biden's visit to Saudi Arabia unlocking more production from them or the UAE. The price is likely to be very high to achieve that," Jeffrey Halley, OANDA senior market analyst, said in a July 12 note.

Tensions between the US and Saudi Arabia eased when OPEC+ agreed June 2 to accelerate production hikes through summer, S&P Global Commodity Insights reported earlier.