By Yuka Obayashi

TOKYO, Reuters – Although oil prices dropped on Friday, they still hovered at three-month highs. The reason for this was fears about new COVID-19 lockingdown measures in Shanghai. This outweighed solid fuel demand in America’s largest consumer.

After a decline of 0.4% the day before, August futures were down 1.01 or 0.8% to $122.06 per barrel at 0141 GMT. U.S. West Texas Intermediate crude fell 0.8% to $120.53/barrel on Thursday, a drop of 0.5%.

Prices have been rising for the last two-months, so Brent is on track to record a fourth consecutive week of gains, and WTI will be able to post a seventh weekly increase. On Wednesday, both benchmarks reached their highest closing levels since March 8th when they achieved their highest settlements in 2008; WTI was on track for a seventh consecutive weekly increase.

Kazuhiko Saido, chief analyst of Fujitomi Securities Co Ltd. said that “Shanghai’s pandemic restrictions have raised concerns about demand in China.”

He stated that the losses were limited due to expectations of tightening global supply, solid U.S. demands for fuels, and slow growth in crude production by OPEC+.

On Thursday, Shanghai and Beijing were placed on an updated COVID-19 Alert. This was after China’s most important economic hub put new restrictions in place.

China saw its imports rise nearly 12 percent in May, despite having a lower base a year ago. However, refiners still had high inventories due to COVID-19 lockdowns. Last month’s slowing economy and high fuel demand meant that China was experiencing a significant increase in imports.

Despite this, the peak season gasoline demand in America continues to drive up crude oil prices. Although the United States and others have released strategic reserves in various ways, these efforts have not had much impact on global crude oil production.

OPEC+, a group that includes OPEC producers and OPEC members including Russia, agreed last week to speed up output growth to curb runaway fuel prices. The group will be left with little surplus capacity, and virtually no ability to make up for any major supply disruptions.