By Alex Lawler

LONDON (Reuters) – Oil dropped virtually $2 a barrel on Monday as a flare-up in COVID-19 instances in Beijing dented hopes of a Chinese language demand rebound, whereas worries about extra rate of interest hikes to regulate rampant inflation added additional stress.

Beijing’s most populous district Chaoyang introduced three rounds of mass testing to quell a “ferocious” COVID-19 outbreak that emerged final week. Mass testing would happen till Wednesday.

was down $1.54, or 1.3%, to $120.47 at 1213 GMT, whereas U.S. West Texas Intermediate crude fell $1.82, or 1.5%, to $118.85.

“The current worth fall is exacerbated by warnings of a ‘ferocious’ unfold of the COVID virus in Beijing by officers, casting doubt on rapid demand restoration,” mentioned Tamas Varga of oil dealer PVM.

Concern about additional price hikes, heightened by Friday’s U.S. inflation information displaying the U.S. client worth index rose 8.6% final month, additionally pushed oil decrease and weighed throughout monetary markets. [MKTS/GLOB]

The information put markets on alert that the Federal Reserve might tighten coverage for too lengthy and trigger a pointy slowdown. The following Fed coverage choice is on Wednesday.

Oil has surged in 2022 as Russia’s invasion of Ukraine compounded provide issues and as oil demand recovered from COVID lockdowns. Brent hit $139, the very best since 2008, in March, and each oil benchmarks rose greater than 1% final week.

Provide stays tight, with OPEC and its allies unable to ship in full on pledged output will increase due to a scarcity of capability in lots of producers, sanctions on Russia, and output in Libya roughly halved by unrest.

“The availability/demand dynamics stay supportive of costs,” mentioned Jeffery Halley of brokerage OANDA, who sees an prolonged oil sell-off as unlikely “until U.S. markets transfer to cost in a full-blown recession” and there are new lockdowns in China.