Oil Soars as China Curbs Covid Protocols

Oil extends its gains on Monday from the last session following the curb of China’s strict Covid protocols, ultimately leading to hopes of economic and demand recovery for the world’s top oil importer.

China’s rising interest rates and strict Covid measures raised concerns over the oil demand and caused its price to fall from above $130 this year. But scarce supply prompted a recovery in its price after the Organization of Petroleum Exporting Countries announced a production cut.

This production cut is expected to take effect in December along with the European ban on Russian oil, which would inevitably tighten the oil supply by the end of the year.

These events, along with curbs in China’s strict Covid Protocol, rallied the oil prices on Friday, with Brent Crude settling up to 1.1% and WTI 2.9% higher.

SPI Asset Management Managing Partner Stephen Innes commented, “This policy pivot will help limit downside fears of a protracted restrictive approach to on-onshore activity, but it doesn’t eliminate the immediate demand hit from current lockdowns.”

Separately, the financial services company ING also noted, “The latest easing in quarantine requirements is certainly a step in the right direction, but the market will likely need to see further easing if this recent enthusiasm is to be sustained.”

Uncertainty Over Oil Prices

Although commodities prices rose on Friday after China eased its Covid measures, cases have increased over the weekend, which raised some uncertainties over the sustainability of the curbs.

According to a Shanghai-based analyst, “The market was too optimistic. The virus will spread faster in winter and the rapid growth of cases makes it impossible for the Chinese government to adjust the zero-COVID policy.”

“Moreover, it will take some time from the release of the policy to its implementation, so China’s full liberalisation may have to wait until the first quarter of next year, which means that the rebound of oil prices last Friday is unsustainable,” the Shanghai-based analyst added.

Meanwhile, China’s demand for oil from Saudi Arabia, the world’s top exporter, remained weak as refiners demanded less crude oil for December.