After China officially opened its frontiers, the price of crude oil rose at the start of the week, fueling hope that the nation was truly emerging from its Covid-related self-isolation.
However both Brent crude and West Texas Intermediate stayed below $80 a barrel as of this posting, this optimism drove them both up by more than a basis point in morning Asian current trade.
According to a Phillip Future analyst quoted by Reuters, “Crude oil prices regained from the prior week’s depreciation as the economic revival in China and less active fiscal tightening predictions from the Federal Reserve set an optimistic tone for consumption recovery.”
Fears of an economic downturn remain the main downward factor for oil, and they are well-founded given that the EU’s inflation expectations is expected to reach a record high at the end of the year and that the U.S. Fed is trying to continue with its assertive inflation-taming strategy. However, China’s restarting is still the primary bullish component for oil.
Energy analyst Bernard Weinstein told TheStreet that oil prices might fall to $60 per barrel if a recession really does affect enough nations.
However, OPEC+ is simultaneously monitoring the oil market and is prepared to adjust production once more to prevent this from happening. However, the cartel predicted that oil demand will be stronger this year than it was last year in its most recent monthly report on the oil sector.
The world’s largest crude importer, China, opened its borders on Monday, strengthening the forecast for fuel market growth and easing concerns about a worldwide recession. This led to an increase in oil prices.
Despite the fact that oil prices rose on Monday, worries about the enormous influx of Chinese tourists possibly sparking a new round of COVID infection and broader economic worries persisted.
The economic structure for benchmark futures trading reflects those worries.
Both the front-month Brent and WTI contracts are in contango, which occurs when the actual cost is less than the price for contracts with a later delivery and often denotes market bearishness.
“Oil prices have probably surged due to growing optimism about China’s reopening, but concerns about a worldwide economic downturn continue.”
As traders concentrated on China’s Covid developments and overall recession anxiety, oil prices experienced a decline at the start of the new year.
The effects of China’s opening of its borders won’t be felt for some time “said Sean Lim, an analyst at Kuala Lumpur’s RHB Investment Bank Bhd. “OPEC+ should continue to provide significant price support, but concerns about weak demand persist. In the medium run, we predict a more stable oil sector.”
So, it is yet to be seen how China’s reopening affects the oil market in the near future.
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