Crude Oil Higher; China to Relax 'Zero-COVID' Policy?

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By Peter Nurse   

AiVIF.com -- Oil prices surged Tuesday, boosted by unconfirmed reports that Chinese authorities were looking at ways to relax the "Zero-COVID" policy that has disrupted the second-largest economy in the world all year, potentially boosting crude demand.

By 09:05 ET (13:05 GMT), U.S. crude futures traded 2.9% higher at $89.03 a barrel, while the Brent contract rose 2.7% to $95.27. 

The reports said that the new Politburo will form a committee looking at ways to relax the very restrictive COVID policy that has limited economic activity with every outbreak, consequently weighing on demand for crude at the world’s largest importer.

China's crude oil imports for the first three quarters of the year fell 4.3%, the first annual decline for the period since at least 2014.

The news comes only days after President Xi Jinping secured a third five-year term in office, allowing him now to change course without exposing himself to political risk.

Helping crude prices rise was U.S. dollar weakness ahead of Wednesday’s conclusion of the latest policy-setting meeting of the Federal Reserve, with traders preempting a less aggressive stance by the U.S. central bank as the year comes to an end.

A weaker buck makes dollar-denominated oil cheaper for foreign buyers, likely boosting demand for the commodity.

The Organization of Petroleum Exporting Countries boosted its forecasts for world oil demand in its 2022 World Oil Outlook released Monday, saying global demand will reach 103 million barrels per day in 2023, up 2.7 million barrels per day from 2022 and 1.4 million barrels a day above last year's prediction.

Tuesday’s positive tone follows both oil benchmarks posting in October their first monthly gains since May, boosted by OPEC+, which includes Russia, saying they would cut output by 2 million barrels per day.

“Clearly, announced OPEC+ supply cuts have stabilized the oil market to a certain extent,” said analysts at ING, in a note. 

“However, how stabilizing this action will be in the medium to long term will really depend on the full impact of the EU’s ban on Russian oil, which comes into effect on 5 December for crude oil and 5 February for refined products.”

The American Petroleum Institute reveals its estimate for weekly U.S. crude inventories later in the session, with last week showing a build of over 4.5 million barrels. 

In corporate news, both Saudi Aramco (TADAWUL:2222) and BP (NYSE:BP) joined the long line of oil companies reporting bumper profits in the third quarter.