Oil drops as new COVID cases in China trigger clampdowns

MELBOURNE (Reuters) - Oil prices fell in early trade on Friday, retreating further from 11-month highs hit last week, on worries new pandemic restrictions in China will curb fuel demand in the world’s biggest oil importer.

US West Texas Intermediate (WTI) crude futures dropped 47 cents, or 0.9%, to $52.66 a barrel at 0148 GMT, after slipping 18 cents on Thursday.

Brent crude futures fell 45 cents, or 0.8%, to $55.65 a barrel, erasing a 2 cent gain on Thursday.

Recovering fuel demand in China underpinned market gains late last year while the United States and Europe lagged, but that source of support is fading as a fresh wave of COVID-19 cases has sparked new restrictions to contain the spread.

“Indeed, investors are struggling to see through short-term pain for long-term gain heading into the weekend as COVID case counts in China are the most significant demand concern for traders,” Axi chief market strategist Stephen Innes said in a note.

The commercial hub of Shanghai reported its first locally transmitted cases in two months on Thursday.

Local governments in areas yet to be hit by big outbreaks are adopting new curbs, and Beijing is urging people not to travel during the upcoming Lunar New Year holiday, when tens of millions of urban workers typically head back to their villages.

Sudden new restrictions worldwide have badly hit the airline industry, with the number of flights globally down 25% last week, ANZ Research said.

“This is likely to weigh heavily on jet fuel demand,” ANZ Research said in a note.

The market is awaiting official oil inventory data from the US Energy Information Administration on Friday, after industry data on Wednesday showed a surprise 2.6 million barrel increase in US crude inventories last week compared with analysts’ forecasts for a 1.2 million barrel draw.

The EIA weekly report has been delayed by two days due to the Martin Luther King Jr. holiday and Inauguration Day.