By Adedapo Adesanya
Oil prices rose by one per cent on Tuesday on the back of a prospect of higher demand as China relaxes its COVID-19 curbs.
Brent crude added 1.26 per cent or $1.51 to sell at $121.00 per barrel while the US West Texas Intermediate (WTI) moved up by $1.49 or 1.26 per cent to trade at $120.00 per barrel.
China’s capital, Beijing and commercial hub Shanghai have been returning to normal in recent days after two months of painful lockdowns to stem outbreaks of the Omicron variant.
Under China’s dynamic zero-Covid policy mandate, local authorities used strict travel bans and stay-home orders to control the virus which disrupted supply chains and other businesses, sending oil prices bearish.
Normal work has resumed and traffic bans were lifted on Monday in most areas of Beijing while employees in some areas of the cities have been required to work from home.
Residents will need to show a PRC test taken within 72 hours to enter public spaces and take public transport, as part of steps to normalise COVID testing.
Now, with the world’s largest oil importer opening its strategic cities, this is expected to boost demand.
Chinese administration officials have warned of the economic damage stemming from the curbs and pledged support to offset the impact.
Further bullish sentiment followed analysts’ doubts that last week’s production policy decision by the Organisation of the Petroleum Exporting Countries (OPEC) and allies, together known as OPEC+, would lighten tight supply.
The group’s decision to bring forward oil production rises to 648,000 barrels per day in July and August is unlikely to improve the global oil balance as members struggle to achieve quota increase and as the rise is lower than the loss of Russian crude oil.
The quota increase from OPEC+ also fails to address the shortage in oil products, analysts said.
On the supply front, the US said Iran’s demands on sanctions-lifting were preventing progress on the revival of the 2015 nuclear deal which analysts have said could add 1 million barrels per day to the world oil supply.
In other supply concerns, the Sharara oilfield in Libya has halted production again and in Norway, more than one in 10 offshore oil and gas workers plan strike action from Sunday if state-brokered wage mediation fails.
Amid this development, Goldman Sachs joined other banks to raise its Brent oil price forecasts by $10 to $135 a barrel for the period between the second half of 2022 and the first half of next year, citing an unresolved structural supply deficit.
Analysts also figure out that due to some driving activities, US crude inventories fell last week. A drop in crude stockpiles could further support prices.
Dipo Olowookere