Oil pares drop as China Covid shift weighed against demand woes

Oil stemmed a string of losses as a tough outlook for demand in 2023 was weighed against further signs of China’s economy reopening.

West Texas Intermediate traded above $74 a barrel, reversing an earlier decline, after futures sank almost 9 per cent over the previous three sessions. China eased a range of Covid restrictions on Wednesday, including allowing some home quarantine and scrapping certain test requirements. The world’s top crude importer was also said to be shifting focus to the economy, with a growth target of about 5 per cent under consideration.

Still, optimism surrounding China’s move to loosen its strict virus curbs was tempered by data showing shrinking exports. And among the gloomy predictions for the global economy, Goldman Sachs Group Inc. Chief executive officer David Solomon said that he saw “bumpy times ahead.”

Crude has stumbled into the final month of the year, with the US benchmark heading for the first back-to-back quarterly drop since mid-2019 as central banks tighten monetary policy. Concerns about the global growth outlook, alongside a soft physical market and falling liquidity have weighed on prices, despite China’s easing of Covid-19 restrictions.

The latest leg down came at a complex moment, with traders assessing the fall-out from Group of Seven curbs on Russian oil, including a price cap that’s meant to punish Moscow for the war in Ukraine.

“The geopolitical risk premium has all but disappeared, but inflation concerns have not,” PVM Oil Associates analysts Tamas Varga and Stephen Brennock said in a report. “Clearly, investors are not worried the least about any potential supply shortage that might be the result of the price cap and the EU ban on Russian oil sales implemented two days ago.”

In response to the cap, which has been set at $60 a barrel, Russia is considering setting a price floor for its international oil sales. Moscow may either impose a fixed price for the nation’s barrels, or stipulate maximum discounts to international benchmarks at which they can be sold.

Prices

  • WTI for January delivery was up 0.2 per cent to $74.38 a barrel at 12:02 p.m. in London.
  • Brent for February settlement rose 0.1 per cent at $79.39 a barrel.

The American Petroleum Institute, meanwhile, reported that US stockpiles decreased by more than 6 million barrels last week, according to people familiar with the figures. Official inventories data follow later Wednesday.

© 2022 Bloomberg L.P.

Dear user, please be aware that we use cookies to help users navigate our website content and to help us understand how we can improve the user experience. If you have ideas for how we can improve our services, we’d love to hear from you. Click here to email us. By continuing to browse you agree to our use of cookies. Please see our Privacy & Cookie Usage Policy to learn more.