Brent crude futures fell $2.06, or 1.7%, to $119.95 a barrel by 0033 GMT while U.S. West Texas Intermediate crude was at $118.54 a barrel, down $2.13, or 1.8%.
Prices tumbled after Chinese officials warned on Sunday of a “ferocious” COVID spread in the capital and announced plans to conduct mass testing in Beijing until Wednesday.
Concerns about further interest rate hikes following a sharp rise in U.S. inflation data on Friday are also weighing on global financial markets.
“The stronger greenback and stagflation fears proved to be the bullish market’s undoing,” Stephen Innes of SPI Asset Management said in a note.
“China remains the significant near-term downside risk, but most view the gradual normalisation of Chinese demand as a powerful positive for oil despite the potential for lockdown noise in the coming weeks as current demand is far from reflecting normal conditions.”
Both global oil benchmarks rose more than 1% last week after data showed robust oil demand in the world’s top consumer, the United States, despite inflation concerns and on hopes that consumption in China – global no. 2 consumer – could rebound after lockdown measures were lifted from June 1.
Oil producers and refineries are running full-throttle to meet peak summer demand, while traders are closely watching for a possible impact from labour disputes in Libya, Norway and South Korea on oil exports and consumption.
To boost supplies in the West, Saudi Arabia, the world’s top exporter, planned to divert some crude to Europe from China in July, traders said.