NEW YORK: Oil prices rose over 1% on Monday after China’s move to reopen its borders boosted the outlook for fuel demand and overshadowed global recession concerns.
The rally was part of a wider boost for risk sentiment supported by both the reopening of the world’s biggest crude importer and hopes for less-aggressive increases to US interest rates, with equities rising and the dollar weakening.
Brent crude was up $1.29, or 1.6%, at $79.80 a barrel by 1:29 p.m. EST (1829 GMT). US West Texas Intermediate crude rose $1.32, or 1.8%, to $75.09.
“The gradual reopening of the Chinese economy will provide an additional and immeasurable layer of price support,” said Tamas Varga of oil broker PVM.
The rally followed a drop last week of more than 8% for both oil benchmarks, their biggest weekly declines at the start of a year since 2016.
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As part of a “new phase” in the fight against COVID-19, China opened its borders over the weekend for the first time in three years. Domestically, about 2 billion trips are expected during the Lunar New Year season, nearly double last year’s and 70% of 2019 levels, Beijing says.
In oil-specific developments, China issued a second batch of 2023 crude import quotas, according to sources and documents reviewed by Reuters, raising the total for this year by 20% from the same time last year.
Despite Monday’s oil rebound, there is still concern that the massive flow of Chinese travellers could cause another surge in COVID infections while broader economic concerns also linger.
Those concerns are reflected in oil’s market structure. Both the near-term Brent and US crude contracts are trading at a discount to the next month, a structure known as contango, which typically indicates bearish sentiment.
Meanwhile, US households see weaker near-term inflation and are expecting notably less spending, even as they foresee their incomes continuing to rise, the New York Federal Reserve said Monday in its December Survey of Consumer Expectations.
The bank reported that respondents to its monthly survey said they see inflation a year from now at 5%, from 5.2% in November, for the lowest reading since July 2021. “The NY Fed data should be supportive for oil prices, as it suggests that inflation is peaking,” said Phil Flynn, analyst at Price Futures group.
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