Oil edges lower after jumping more than 5% in first week of 2022

Oil futures edged lower Monday, as traders assessed supply disruptions in Kazakhstan and Libya against the threat posed by omicron to demand.

West Texas Intermediate crude for February delivery CL00, -0.42% CLG22, -0.42% fell 54 cents, or 0.7%, to $78.36 a barrel on the New York Mercantile Exchange. March Brent crude BRN00, -0.28% BRNH22, -0.28%, the global benchmark, was down 46 cents, or 0.6%, at $81.29 a barrel on ICE Futures Europe. WTI, the U.S. benchmark, rose 4.9% last week, while Brent advanced more than 5%.

Analysts said worries about COVID’s impact on demand weren’t helping sentiment. Chinese authorities in the northern coastal city of Tianjin, after the detection of two cases of COVID-19 caused by the omicron variant of the coronavirus, ordered the testing of millions of people weeks ahead of the start of the Winter Olympics in nearby Beijing. China has been sticking to a “zero-COVID policy” entailing strict lockdowns and mass testing in response to outbreaks.

Read: Failed China ‘zero-COVID’ policy tops list of 2022 geopolitical risks: Eurasia Group

“While we see other countries adapting to live with COVID, China clearly continues to pursue its zero-COVID policy,” said Warren Patterson, head of commodities strategy at ING, in a note. “This is a risk to oil demand since China is the largest crude oil importer in the world. We are also approaching Chinese New Year, a time when there is normally plenty of domestic travel, and so any domestic restrictions will weigh on oil consumption.”

But supply concerns may remain a bigger factor, he said. Unrest in Kazakhstan, which produces around 1.6 million barrels a day, helped boost prices last week, as the threat of disrupted output following outages in Libya underlined supply fears.

Chevron said the Tengizchevroil consortium it leads is gradually restoring production at Kazakhstan’s Tengiz oil field after civil unrest led to a reduction in output by an unspecified amount last week, according to news reports.