Oil rallies over 2% on China reopening, OPEC holds output steady

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By Ambar Warrick 

AiVIF.com-- Oil prices rose sharply on Monday as more Chinese cities began relaxing strict anti-COVID measures, ramping up hopes for a full reopening, while the OPEC kept production steady at its latest meeting, 

Several Chinese cities, including economic hubs Shanghai and Beijing, relaxed some movement and testing measures over the past week, drumming up hopes for a nationwide reversal. Reports also suggested that the government is planning to announce such a move in the coming weeks.

Such a scenario would be largely positive for crude markets, given China’s status as the world’s largest oil importer. Dwindling demand in the country due to its strict anti-COVID policies was a major source of selling pressure on oil markets this year.

Brent oil futures jumped 2.3% to $87.38 a barrel in early Asian trade, while West Texas Intermediate crude futures surged 2.1% to $81.66 a barrel. Crude prices also logged strong gains last week, as Chinese cities began scaling back some anti-COVID measures.

A widespread reopening in China still appears to be a distant prospect, given that the country is grappling with record-high daily increases in infections.

But the imposition of lockdown measures sparked a wave of unprecedented protests across the country, which now appears to have pushed the government into relaxing some curbs.

Analysts warned that China’s reopening may spur some near-term volatility, especially if the country faces a bigger jump in infections after relaxing lockdown measures. 

Still, optimism over a Chinese reopening largely offset signals from the Organization of Petroleum Exporting Countries and allies (OPEC+) that it will maintain its current oil output levels.

The cartel said it will continue to assess the impact of sluggish demand and slowing economic growth on the crude market, after cutting production by 2 million barrels per day in October. 

Major producer Russia was also seen mulling over a supply cut after the Group of Seven nations imposed a $60 a barrel price cap on the country’s crude exports. 

Crude markets had logged big swings in the past week in anticipation of the OPEC meeting, which is its last for the year. The cartel will now meet only in February 2023 to decide on future production, although it will then have much more data on a Chinese reopening and global economic trends. 

Weakness in the dollar also appeared to be benefiting crude prices, as the greenback took little support from stronger-than-expected nonfarm payrolls data.

Markets are largely sticking to the Federal Reserve’s signaling of smaller interest rate hikes in the coming months. The central bank is set to meet for the last time in 2022 next week.