Oil drops from three-week high following Wall Street slump

Oil sustained losses as the dollar ticked higher and equity markets erased gains, susceptible to broader market swings amid thin liquidity.

West Texas Intermediate traded near $78 a barrel after closing at a three-week high earlier this week.

Gains were driven by China’s determination to continue easing restrictions even as Covid infections there soar.

Volatility was also heightened after the Kremlin said this week it would ban exports of Russian crude oil and refined products to foreign buyers that adhere to a price cap.

“The outlook remains highly uncertain for the oil market,” said Craig Erlam, senior market analyst at Oanda. China’s success in pivoting away from Covid Zero could be key to a recovery, but it will take time to understand the implications on oil demand, he said.

Crude is still set for a modest gain in 2022 after a volatile year that saw prices surge following Russia’s invasion of Ukraine and then gradually pull back as fears of a global slowdown grew.

China’s rapid unwinding of its strict Covid Zero policy and a resulting wave of virus cases have hit a market that’s prone to sharp swings due to a lack of liquidity.