Oil prices edged higher on Monday as a potential for demand recovery due to China’s less strict COVID control measures and the US’s move to repurchase oil for the Strategic Petroleum Reserve (SPR) beat concerns over a recession.
Brent crude futures were trading 0.5% to $79.45 per barrel before easing to $78.78 while the US West Texas Intermediate crude futures gained 0.6% to $74.97 per barrel, but later slipped to $74.17.
The two benchmarks lost over $2 per barrel on Friday after the Federal Reserve and European Central Bank (ECB) took hawkish stances on interest rate hikes, raising concerns over a possible economic downturn.
Demand Outlook Improves on China Recovery, US Buyback Plan
Driving prices up was news of major oil importer China seeing the first of three expected waves of COVID-19 cases following Beijing’s decision to ease restrictions.
Adding to the optimism in oil markets was the US Energy Department’s announcement that it would start buying back crude oil for the SPR for delivery in February next year. The move will be the US’s first purchase since it released 180 million barrels from the stockpile, which was completed in October.
Market analyst Tina Teng stated that while there has been a rise in COVID cases, the reopening optimism and accommodative policy improved the outlook on oil demand.
A French data analytics firm said China’s sudden relaxation of virus control measures had boosted its aviation sector, with jet fuel demand increasing 75% or almost 170,000 barrels per day (bpd) in two weeks.
Furthermore, it was reported last week that China aims to operate more flights to push the country’s daily passenger flight volumes back to 70% of 2019 levels by next month.
Chinese officials also vowed to work on restoring stability to its economy in 2023 and ensure enough liquidity in the financial markets to meet critical targets.
According to chief economist Iris Pang, fiscal stimulus and stable monetary policies would be the key tools for growth, estimating fiscal deficit at about 8% of gross domestic product (GDP) next year.
