Oil Prices Fall on Rising COVID-19 Infections in Asia & Increasing Inflation Fears

Oil prices continue falling for a second day now on renewed demand concerns as COVID-19 cases in Asia rise and fears that rising inflation might lead the US Federal Reserve to raise interest rates strengthen.

Brent futures fell 0.8% to $68.14 a barrel at 06.42 GMT. It settled 1.1% lower on Tuesday after briefly climbing above $70 earlier in the session. Brent's rise to $70 was driven by optimism over the reopening of the US and European economies, among the world's biggest oil consumers. The mood, however, didn’t last and after retreated on fears of slowing fuel demand in Asia as COVID-19 cases surged. 

WTI, in turn, dropped 0.9%, to $64.88 a barrel, following a 1.2% fall on Tuesday.

”Yesterday's trade proved again that $70 signals irrational exuberance. Assessing the global demand picture remains challenging as reopenings and restrictions across the world are probably the most diverse since the start of the pandemic”, said Vandana Hari, energy analyst at Vanda Insights in Singapore.

The Fed has indicated that interest rates will stay at their current low levels through 2023 though futures markets show investors believe rates may start to be raised by September 2022.

Lower oil prices arrived despite a weaker US dollar which was at a 4-1/2 low against a basket of currencies. Investors will additionally be keeping an eye on the latest US crude and products stocks data from the US Energy Information Administration due on Wednesday.

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