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Oil prices tumbled about 3 per cent on Thursday, as new COVID-19 lockdown measures in China added to worries that high inflation and interest rate hikes are denting fuel demand.

Brent crude fell $2.90 to $92.74 a barrel, a 3 per cent drop, by 12:30 p.m. EST (1730 GMT). U.S. West Texas Intermediate (WTI) crude futures fell $2.72, or 3 per cent, to $86.83 per barrel.

“Western-world oil demand, as well as China’s, is stagnant, while supplies are expanding incrementally, largely on the back of the U.S. shale boom,” said Julius Baer analyst Norbert Rucker.

Asia’s factory activity slumped in August as China’s zero-COVID curbs and cost pressures continued to hurt businesses, surveys showed on Thursday, darkening the outlook for the region’s fragile recovery.

Southern Chinese tech hub Shenzhen tightened COVID-19 curbs as cases kept increasing. Large events and indoor entertainment were suspended for three days in the city’s most populous district, Baoan.

The main European stocks index fell to seven-week lows as worries deepened about aggressive rate hikes to fight record inflation.

The dollar index hit a 20-year high after U.S. data showed a resiliently strong economy, giving the Federal Reserve more room to raise interest rates. A stronger greenback makes dollar-priced oil more expensive for holders of other currencies.

“China doing another round of COVID lockdowns at major export terminals,” said Dennis Kissler, senior vice president of trading at BOK Financial, which along with the “super strong U.S. dollar is causing further fund liquidation in crude futures,”

A possible revival of a 2015 Iran nuclear deal which would allow the OPEC member to boost its oil exports also weighed on prices.

French President Emmanuel Macron said he hoped a deal would be concluded in coming days.

Oil market volatility grew this year on concerns about inadequate supply in the months after Russia sent military forces into Ukraine and as OPEC struggles to increase output.

OPEC’s output hit 29.6 million barrels per day (bpd) in the most recent month, according to a Reuters survey, while U.S. output rose to 11.82 million bpd in June.

Both are at their highest levels since April 2020.

Still, the oil market will have a small surplus of just 400,000 bpd in 2022, much less than forecast earlier, according to OPEC and its partners – known as OPEC+ – due to underproduction of its members, data from the group showed.

The group expects an oil market deficit of 300,000 bpd in 2023.

In the latest attempt to bring Venezuelan oil into the market, Chevron Corp submitted a new application to the U.S. government to expand its license to operate in Venezuela, sources said.

Meanwhile, U.S. crude stocks fell by 3.3 million barrels, the U.S. Energy Information Administration said on Wednesday, while gasoline stocks were down 1.2 million barrels.

Finance ministers from the Group of Seven group of wealthy nations will discuss the U.S. Administration’s proposed price cap on Russian oil when they meet on Friday, the White House said.

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