Oil prices down slightly but hopeful of China demand

BOE Report

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Oil prices fell on Monday, while China eased some of its strict COVID-19 protocols, which have fuelled hopes of a recovery in economic activity and demand at the world’s top crude importer.

 

Contracts for Brent crude and U.S. West Texas Intermediate edged up nearly 1% earlier in the session but later pared some gains.

U.S. West Texas Intermediate crude futures were down $1.34, or 1.51%, at $87.60 a barrel after closing Friday’s session 2.9% higher.

Brent crude futures were down $1.02, or 1.06%, to $94.83 a barrel after settling up 1.1% on Friday.

Commodities prices rallied on Friday after China’s National Health Commission adjusted its COVID prevention and control measures. But COVID cases climbed in China over the weekend.

“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,” said Leon Li, a Shanghai-based analyst at CMC Markets.

“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 easing curbs in China, the world’s largest crude oil importer, included shortening quarantine times for close contacts of cases and inbound travellers by two days, as well as eliminating a penalty on airlines for bringing in infected passengers.

China’s demand for oil from world’s top exporter, Saudi Arabia, also remained weak as several refiners have asked to lift less crude in December.

“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,” ING said in a note.

Separately, U.S. Treasury Secretary Janet Yellen said on Friday that India can continue buying as much Russian oil as it wants, including at prices above a G7-imposed price cap mechanism, if it steers clear of Western insurance, finance and maritime services bound by the cap.

However, a firmer dollar kept a lid on oil price gains.

U.S. Federal Reserve Governor Christopher Waller has said it would take a string of soft reports for the bank to take its foot off the brakes on interest rate hikes which have been driving up the dollar and depressing prices of commodities priced in the greenback.

On Indonesian island Bali ahead of the G20 summit, U.S. President Joe Biden and Chinese leader Xi Jinping will meet in person on Monday for the first time since Biden took office.