By Adedapo Adesanya
Oil prices rose over 1 per cent on Monday after China, the world’s second-largest economy, reopened its borders for the first time since 2020.
The world’s largest oil importer reopened its doors to international visitors for the first time since it imposed travel restrictions in March 2020.
Incoming travellers will no longer need to quarantine – marking a significant change in the country’s COVID-19 policy as it battles a surge in cases.
However, they will still require proof of a negative PCR test taken within 48 hours of travelling.
The move has been welcomed by the market as it boosted the outlook for fuel demand and overshadowed global recession concerns.
It caused the Brent crude futures to jump by $1.08 or 1.4 per cent to $79.65 a barrel and lifted the US West Texas Intermediate crude (WTI) by 86 cents or 1.2 per cent to $74.63 a barrel.
Monday’s rally followed a drop last week of more than 8 per cent for both oil benchmarks, their biggest weekly declines at the start of a year since 2016.
Domestically, about 2 billion trips are expected during the Lunar New Year season, nearly double last year’s and 70 per cent of 2019 levels, the country’s authorities said.
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.
Over the past three years, China had one of the world’s strictest COVID-19 health policies that saw numerous lockdowns and frequent testing requirements and had a significant impact on the nation’s economy.
Less hawkish sentiments coming from the US Federal Reserve, combined with a softening US Dollar, also gave oil prices a push as the US Dollar Index dropped 0.82 per cent on Monday.
The US Federal Reserve raised interest rates by 50 basis points last month after delivering four consecutive 75 basis-point hikes last year but said it was likely to keep interest rates higher for longer to tame inflation.
Also, the US Department of Energy (DoE) is attempting to entice producers to sell oil at a favourable rate, around $70/barrel, to enable it to refill the Strategic Petroleum Reserve (SPR).
Last Friday, reports emerged that the DoE had rejected the first bids as unfavourable to taxpayers. If oil prices continue to climb, it will be increasingly difficult to refill the SPR, which has reached its lowest level since 1984.
