Oil Prices Hit Two Month High as China Eases Restrictions

Oil closed at the highest level since August as markets rallied over China easing its Covid restrictions.

Brent crude futures settled above $98 a barrel for a third straight weekly gain. China is said to be working on plans to scrap a system that penalizes airlines for bringing virus cases into the country, a move that suggests the nation may be easing its so-called Covid Zero policy, paving the way for higher crude demand. 

Oil has struggled to find direction in recent sessions, with lackluster trading volumes rendering futures especially susceptible to macro market moves. Adding to volatility is the push and pull between a tightening supply outlook and concerns over a global economic slowdown. The prospect of renewed demand from China, the world’s biggest crude importer, is propelling futures to levels not seen since August, while new Russian sanctions taking force in December are also bullish for crude.

“There are too many geopolitical risks on the table -- that should keep oil’s trajectory higher,” said Ed Moya, senior market analyst at Oanda Corp. “If the dollar continues to slide here, oil’s strength could be relentless.”

China’s Covid Zero strategy, which relies on lockdowns and mass testing to stamp out infections, has weighed on the nation’s economy and on the crude market. Oil demand in 2022 is seen falling by 400,000 barrels a day due to the virus curbs, according to Bank of China International Ltd. analysts.

Prices:

• WTI for December delivery advanced $4.44 to settle at $92.61 a barrel in New York.
• Brent for January settlement gained $3.90 to $98.57 a barrel.

“With China’s easing some COVID restrictions especially for air travel most traders are taking the news as a positive pull to demand in the near future,” said Dennis Kissler, senior vice president at Bok Financial Securities.