Oil rebound after the relaxation of health rules in China

Oil prices rebounded slightly on Wednesday in the wake of the Chinese government’s decision to ease the health rules of its strict policy to fight the Covid-19 pandemic, not without having fallen the previous evening.

Around 7:45 a.m., a barrel of West Texas Intermediate (WTI), the benchmark variety of American black gold for delivery in January, was trading at 74.57 dollars, up 0.43%. Tuesday evening, it was worth 74.25 dollars, after having fallen by 3.48% and reached during the day 73.41 dollars, a level not seen since the end of December 2021. In two sessions, crude fell more than 7% besides -Atlantic.

As for the 159 liters of Brent from the North Sea, with maturity in February, they were trading at 79.61 dollars, still below the threshold of 80 dollars, an increase of 0.32%. The night before, they had fallen no less than 4.02% to $79.35, closing below $80 for the first time since early January.

China announced on Wednesday a general easing of health rules against Covid, abandoning its strict approach to the virus after historic demonstrations of anger across the country. According to the new instructions unveiled by the National Health Commission (NHC) – which has the value of a ministry -, ‘asymptomatic infected people and mild cases who can be isolated at home will generally be so’.

Magnitude change

This is a dramatic change from the norm that has been in place for almost three years, which required that any positive case be taken to a quarantine centre. In addition, the country will “further reduce the scope of nucleic acid tests and reduce their frequency”, whereas until then it had asked residents to test themselves several times a week to be able to access any public place.

Another novelty announced on Wednesday: it will now be possible to travel from one Chinese province to another without having to present a negative PCR test less than 48 hours old, and no test will be required on arrival either. The announcement comes hours after the official publication of new worrying figures for the world’s second largest economy: in November, China saw its exports and imports collapse, under the combined effect of its zero Covid policy and a demand sluggish.

While this easing of restrictions in the Middle Kingdom is likely to relieve investors, auguring a recovery in demand for black gold from the world’s largest importer, investors continue to fear ‘the potential effect of a new series of rate hikes (by the US central bank) on the global economy, commented Susannah Streeter, of Hargreaves Lansdown. This sentiment had already justified Monday’s trend reversal.

A stronger-than-expected monetary tightening could weaken demand for black gold and further depress prices. Another element, the recovery of the dollar, which has rebounded over the past two days after several weeks of sliding, which is unfavorable to oil prices, most often denominated in greenbacks.

On the supply side, some operators were disappointed by the maintenance, announced on Sunday, of the production of the Organization of the Petroleum Exporting Countries (OPEC) and their allies of the OPEC + agreement, explained to AFP Bart Melek, of TD. Securities. As a result, ‘the market is worried about seeing too much supply’ at the global level, continues the analyst.

Status Quo

Traders also reacted on Tuesday to the entry into force of the European embargo on Russian oil, accompanied by a price cap mechanism for deliveries to destinations other than Europe. In the opinion of Craig Erlam, an analyst at Oanda, ‘in many respects, this does not improve visibility in the crude oil sector; one can even say (that these measures) make the outlook more uncertain’.

At this stage, ‘it seems that the only thing guaranteed on the oil market, for the moment, is volatility’, he asserts. Moscow has repeatedly asserted that Russia will not sell oil to countries applying the cap. For Mr. Erlam, this mechanism is probably considered by investors as a ‘status quo’, especially as Russia tries to improve its ‘ability to circumvent sanctions’.

/ATS

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