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Oil comes down $3 on China’s COVID surge and firmer dollar by Reuters

©Reuters. FILE PHOTO: Oil pump jacks are seen at the Vaca Muerta Shale oil and gas reservoir in Patagonia’s Neuquen province, Argentina, January 21, 2019. REUTERS/Agustin Marcarian

By Laura Sanicola

(Reuters) – Oil prices slipped about $3 lower on Monday, dragged down by a firmer U.S. dollar, while rising coronavirus cases in China dashed hopes of a speedy reopening of the economy for the world’s largest crude oil importer.

Futures were down $2.85, or 3%, at $93.14 a barrel after gaining 1.1% on Friday. WTI crude futures were down $3.09, or 3.47%, at $85.87 after rising 2.9% on Friday.

Commodity prices rose on Friday after China’s National Health Commission adjusted its COVID prevention and control measures to shorten quarantine periods for close-contact cases and inbound travelers.

But COVID-19 cases surged in China over the weekend, with Beijing and other major cities reporting record infections on Monday.

“The spike in COVID cases will only lead to more lockdowns in the short term…right now, China is not a source of bullish support for the oil complex,” said John Kilduff, a partner at Again Capital LLC in New York.

The US dollar was also higher against the euro and the yen as investors braced for possible Federal Reserve rate hikes after a policymaker said they were making too much of last week’s cooler US inflation data.

A stronger dollar makes dollar-denominated commodities more expensive for holders of other currencies and tends to weigh on oil and other risky assets.

The Organization of the Petroleum Exporting Countries (OPEC), meanwhile, lowered its forecast for global oil demand growth this year and next, citing economic headwinds.

US domestic supply also continues to increase. Oil production in the Permian in Texas and New Mexico, the largest US shale basin, is expected to rise by about 39,000 barrels per day (bpd) to a record 5.499 million bpd in December, the US Energy Information Administration (EIA) said in its productivity report on Monday.

Separately, US Treasury Secretary Janet Yellen said on Friday India can continue to buy as much Russian oil as it wants, even at prices above a G7-imposed price cap mechanism, if it stays away from Western insurance, financial and maritime services that do are tied to the cap.