Concerns Over Shanghai's New Partial Lockdowns Weigh on Demand, Causing Oil Prices to Decline

Oil prices dropped on Friday but remained near three-month highs, as concerns over new COVID-19 lockdown measures in Shanghai outweighed the United States' steady demand for fuels.

Brent crude futures for August dropped $1.01, or 0.8%, to $122.06 a barrel at 01:41 GMT, following a 0.4% decline the previous day. U.S. West Texas Intermediate crude for July lost 98 cents, or 0.8%, to $120.53 a barrel, after falling 0.5% on Thursday.

Brent was projected for a fourth consecutive weekly gain while WTI was projected for a seventh consecutive weekly gain, notwithstanding the recent price increases. Wednesday represented the highest closing for both benchmarks since March 8, when they reached their highest settlements since 2008.

Kazuhiko Saito, head analyst of Fujitomi Securities Co. Ltd., stated that Shanghai's new pandemic limitations have prompted concerns about China's demand.

"However, losses were limited by forecasts that the tight global supply will persist in the face of robust U.S. demand for fuels and a gradual increase in oil output by OPEC+," he said.

Shanghai and Beijing were placed on a new COVID-19 warning on Thursday, following the imposition of new lockdown restrictions and the announcement of mass testing for millions of inhabitants in China's greatest commercial hub.

China's crude oil imports surged about 12 percent in May from a low base a year earlier, despite the fact that refiners were still contending with large stockpiles due to COVID-19 lockdowns and a weakening economy, which weighed on fuel demand last month.

In the meantime, peak summer demand for gasoline in the United States continues to drive up oil prices. The United States and other nations have engaged in a series of releases of strategic reserves, but these have had a limited impact, as crude oil production has risen extremely slowly.

Last week, OPEC+, a group comprised of OPEC and producers such as Russia, agreed to accelerate supply increases in an effort to rein in soaring fuel costs and curb inflation. However, the business will be left with very little spare capacity and essentially no room to compensate for a significant supply disruption.