Oil edges lower as traders weigh China lockdowns, Libyan strife

Oil edged lower after a four-day run of gains as investors weighed the threat to energy consumption from a slew of lockdowns in major centres in China against interruptions to crude supplies from Libya.

West Texas Intermediate dropped below $108 a barrel in early Asian trading after closing at the highest level in more than three weeks on Monday. China is battling a renewed Covid-19 outbreak, imposing harsh curbs to try and stem the disease’s spread, hurting industrial output and mobility in the top importer.

Libya’s oil production has fallen by more than half a million barrels a day and there’s a risk of further losses as a wave of political demonstrations engulfs the OPEC member. The Sharara field in the west of the country, which can pump 300,000 barrels a day, was has been closed as protests spread.

Oil has advanced more than 40 per cent this year as Russia’s invasion of Ukraine upended an already-tight market. The gains in crude as well as other commodities are fanning inflation, prompting central banks to tighten policy. On Monday, Federal Reserve Bank of St. Louis President James Bullard said the US central bank shouldn’t rule out rate increases of 75 basis points.

The jump in oil prices spurred US President Joe Biden to order the release of millions of barrels of crude from emergency stockpiles. Following the move, a cargo of crude from the nation’s Strategic Petroleum Reserve departed a Texas port bound for Europe as some local refiners shun Russian supplies.

Oil markets remain backwardated, a bullish pattern that’s marked by near-term prices trading higher than longer-dated ones. Brent’s prompt spread – the difference between its two nearest contracts – was $1.23 a barrel in backwardation, up from 42 cents a week ago.