Oil Retreats After China Pledges to Stick With Covid Zero Policy

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(Bloomberg) — Oil tumbled at the start of the week after health officials in China signaled no relaxation of the nation’s Covid Zero stance, setting back the outlook for energy consumption in the world’s largest crude importer.

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West Texas Intermediate sank below $91 a barrel, after surging more than 5% last week as speculation about a potential pivot in China’s health strategy and a weaker dollar supported gains. Those hopes were dashed at the weekend, when officials at the National Health Commission’s disease prevention and control bureau said China will “unswervingly” adhere to current Covid controls.

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Oil has been buffeted in recent weeks as investors sought to gauge the outlook for demand in China, the impact of looming sanctions on Russian flows amid the war in Ukraine, and a decision by the Organization of Petroleum Exporting Countries and its allies to rein in production from this month. Still, US benchmark crude prices remain more than 20% higher year-to-date.

China’s Covid Zero strategy relies on lockdowns and mass testing to stamp out infections, and its implementation has weighed on the nation’s economy and been a sustained headwind for the global crude market. Countrywide, more than 4,200 new locally transmitted cases were reported for Saturday, an increase from about 3,500 a day earlier.