Oil prices gain on China's easing of pandemic restrictions and US winter storms

World's biggest importer of crude is ending some of its most stringent Covid curbs on January 8

Beijing Capital International Airport. China will end its quarantine requirements for inbound travellers at the end of next week. Reuters

Oil prices climbed to their highest in three weeks on Tuesday as China's easing of Covid-19 restrictions boosted hopes of a rebound in demand in the world's biggest importer of crude, while futures also rallied amid concerns that winter storms across the US are affecting production.

Brent, the benchmark for two thirds of the world’s oil, was 1.16 per cent higher at $84.89 a barrel at 8.05pm UAE time. West Texas Intermediate, the gauge that tracks US crude, was up 1.17 per cent at $80.49 a barrel.

Both benchmarks rallied last week, posting their biggest weekly gains since October at the close of trade on Friday after Russian Deputy Prime Minister Alexander Novak said Moscow could cut its oil output by 500,000 barrels per day to 700,000 bpd in early 2023 as it responds to a price cap on its crude and oil products.

Russia plans to ban the supply of oil and related products to countries and legal entities that support the price ceiling, Mr Novak was quoted by the RIA news agency as saying.

Brent was 3.63 per cent higher at the end of trade on Friday while WTI was up 2.67 per cent.

On Monday, China's National Health Commission said it would end its quarantine requirements for inbound travellers from January 8. The measures have been in place since the start of the pandemic.

“This is certainly something that traders and investors have been hoping for a long period of time as China remained very strict with its zero-Covid policy throughout this year,” said Naeem Aslam, chief market analyst at AvaTrade.

Oil prices had posted their worst weekly decline in months in early December as mounting recession concerns and fears of a global economic slowdown weighed on the short-term demand outlook.

Crude oil is now up by about 15 per cent since the December dip.

“The Chinese reopening news could give a helping hand to oil bulls for an extension of the rally to the $88 per barrel level,” said Ipek Ozkardeskaya, a senior analyst at Swissquote Bank.

Oil prices have also gained because of a blizzard that has battered the US and led to refinery closures in the oil-rich Texas Gulf Coast area and the cancellation of thousands of flights.

More than 1.8 million barrels per day of Texas’s oil-processing capacity have been disrupted by the freezing conditions, according to Bloomberg estimates.

The severe storm that hit North America disrupted power supply in some areas, with about 250 million American and Canadian residents affected by the storm.

Oil futures have also gained on the back of a weaker US dollar, which makes fuel cheaper for holders of other currencies.

The US Dollar Index, a measure of the value of the greenback against a weighted basket of major currencies, was down about 0.19 per cent at 104.12 yesterday at 8.19pm UAE time.

The index, which hit a two-decade high of 111.80 in September, has fallen by about 9 per cent over the past three months amid signs of slowing inflation.

Fears of a global recession remain a major concern among investors and traders “and this is likely to keep a cap on any corrective moves in the markets”, Mr Aslam said.

Last week in an interview with official news agency SPA, Saudi Arabia's Energy Minister Prince Abdulaziz bin Salman said Opec and its allies will remain “proactive” as global oil markets face uncertainty.

“In face of a wide range of uncertainties, Opec+ has no choice but to remain pro-active and pre-emptive, and this is not an easy task, especially that the market has the tendency to overreact to news in both directions,” he said.