Oil prices dipped on both major benchmarks last week, after US consumer prices rose more than expected and China imposed fresh Covid-19 restrictions on millions of people.
Brent Crude slipped 1.06 per cent to $122 per barrel, while WTI Crude dropped 0.84 per cent to $120.70 ahead of trading this week.
Oil markets slumped alongside Wall Street stocks amid news US consumer prices accelerated in May.
Gasoline prices have hit a record high of over $5 per gallon while the cost of food has also soared, leading to the largest annual increase in about 40 years.
This has raised expectations from investors the Federal Reserve will tighten policy more aggressively, weighing down future oil rallies.
In another red flag for demand, Shanghai and Beijing went back on COVID alert on Thursday last week – the country’s biggest trading city and its capital.
Parts of Shanghai have now imposed new lockdown restrictions and the city announced a round of mass testing for millions of its residents.
While China’s crude oil imports in May were up nearly 12 per cent from a year earlier, totalling 10.8m barrels per day last month, analysts suggest this reflect savvy purchasing rather than rebounding demand.
Commerzbank analyst Carsten Fritsch said: “This does not indicate that oil demand is picking up. Instead, China is likely to have acted opportunistically, buying crude oil from Russia at a significantly lower price than the global market level in order to replenish its stocks,” Commerzbank analyst Carsten Fritsch said.
Nevertheless, prices remain historically elevated well above the $100 milestone with Russia’s invasion of Ukraine continuing to power fears of supply shortages.
This has been exacerbated in recent days by Iran seemingly signalling the end of any potential revival of its nuclear deal with the US.
It has begun removing all International Atomic Energy Agency monitoring equipment installed under the deal, with months of talks between both countries failing to reach a conclusion.
As for potential headwinds, the International Energy Agency will publish its global oil market report for June later this week, which has the potential to influence prices.