Oil prices rose on Monday, extending gains from the previous session after China loosened some of its strict COVID-19 protocols, fuelling hopes of a recovery in economic activity and demand at the world’s top crude importer.
Brent crude and West Texas Intermediate (WTI) contracts were up around 1% at the start of the session but later reversed some gains.
Brent crude futures rose 31 cents, or 0.3%, to $96.30 a barrel as of 0430 GMT after rising 1.1% on Friday. West Texas Intermediate (WTI) crude futures also rose 23 cents, or 0.3%, to $89.19 a barrel after closing Friday’s session up 2.9%.
Commodity prices rose on Friday after China’s National Health Commission eased COVID prevention and control measures. But over the weekend, COVID cases escalated in China.
However, a stronger dollar has capped oil price increases.
The easing restrictions in China, the world’s largest crude oil importer, included shortening quarantine times for close contacts of cases and inbound travelers by two days, as well as eliminating a penalty on airlines for bringing in infected passengers.
Despite market optimism, the virus will undoubtedly spread faster in winter. As a matter of fact, the rapid growth of cases makes it impossible for the Chinese government to adjust its zero-COVID policy. Also, implementation of the policy will take time, so China’s full liberalization may have to wait until the first quarter of next year, making the recovery in oil prices last Friday unlikely to be sustainable.
Oil from Saudi Arabia, China’s world’s largest exporter, also remains weak as several refineries curtailed supplies.
The recent relaxation in quarantine requirements is in a way a step in the right direction, but the market needs to see more easing for this latest enthusiasm to continue.
Separately, US Treasury Secretary Janet Yellen said on Friday that if India stays away from Western insurance, finance, and shipping services, it can continue to buy as much Russian oil as it wants, including at prices above the G7-imposed cap price mechanism. Moreover, Yellen said that the ceiling on Russian oil would benefit China.
US Federal Reserve Chairman Christopher Waller emphasized that the bank should take its foot off the brakes against the rise in interest rates, which pushes the dollar up and suppresses commodity prices priced in dollars.
On the Indonesian island of Bali ahead of the G20 summit, US President Joe Biden and Chinese leader Xi Jinping will meet face-to-face for the first time since Biden took office on Monday.