Oil climbed on Monday as the possibility of demand recovery gained the upper hand over global economic worries, thanks to China’s relaxation of Covid-19 limitations and the United States intention to purchase back oil for its state reserves.
Brent crude futures were up 74 cents, or 0.9%, to $79.78 a barrel at 0458 GMT, while US West Texas Intermediate crude was up 74 cents, or 1%, to $75.03 a barrel.
Both benchmarks plummeted more than $2 a barrel last Friday, following hawkish statements from US and European central banks on interest rate rises that spurred concerns of a probable recession.
After Beijing lifted mobility limits, China, the world’s top crude oil importer, and second-largest oil user, is seeing the first of three projected waves of Covid-19 cases.
“Despite a surge in Covid cases, the reopening optimism and accommodative policy improve oils’ demand outlook,” CMC Markets analyst Tina Teng said.
According to satellite data provider Kayrros, China’s abrupt halt to its ‘dynamic zero’ Covid policy is reviving its struggling aviation sector, with average jet fuel consumption increasing by 75%, or over 170,000 barrels per day, in two weeks.
On Friday, news portal Caixin reported that China wants to increase flights with the goal to restore the country’s average daily passenger travel volumes to 70% of 2019 levels by Jan. 6.
“The market will focus on the progress of demand resumption China…the general outlook is positive but the path of recovery could be slow and bumpy given the severe Covid situation in the near term,” analysts from Haitong Futures said.
China also committed to focus on stabilizing its $17-trillion economy in 2023 and take up policy changes to guarantee key targets are reached, said its top leaders and officials during a closed-door two-day conference for setting the economy’s course next year.
“The main tools for growth will be a fiscal stimulus and stable monetary policies. We expect there will be a fiscal deficit of around 8% of GDP next year,” said Iris Pang, chief economist of Greater China at ING Bank.
The US Energy Department’s statement on Friday that it will begin repurchasing crude oil for the Strategic Petroleum Reserve for delivery in February of next year bolstered the prognosis for higher prices.
This will be the United States’ first purchase since this year’s record 180 million barrel discharge from the stockpile.