China COVID-19 Easing, US Weather Buoy Oil Prices

By Adedapo Adesanya

Oil prices hit a three-week high on Tuesday as the market returned from the Christmas holiday spurred by hopes of a demand recovery as China eases its COVID-19 restrictions.

Brent crude was up 41 cents or 0.5 per cent to trade at $84.33 a barrel, while the United States West Texas Intermediate (WTI) crude gained 26 cents or 0.33 per cent to quote at $79.82 per barrel.

This saw both benchmarks hitting their highest level since December 5 as China announced on Monday a major easing of its COVID-19 travel quarantine rules after Winter Storm Elliott knocked offline around 1.5 million barrels per day of refinery capacity in the US Gulf Coast.

China, the world’s largest crude importer, said that by January 8, inbound travellers to China would no longer be subjected to mandatory travel quarantine.

This is happening even as the country is seeing a surge in COVID-19 cases after abandoning other parts of its so-called “zero Covid” policy that was in place for over two and a half years.

Despite the soaring number of infections and disruption to industries and supply chains, oil demand could be set for a major boost in the world’s top crude oil importer after the initial COVID-19 waves, analysts say.

On Tuesday, oil was also supported by refinery closures in the US due to the severe Winter Storm Elliott. The vast storm swept through Canada and the US just ahead of the Christmas holiday weekend, bringing freezing temperatures, snow, and icy conditions. This led to the interruption of power supply in some areas just as thousands of flights were cancelled, and Christmas travel plans were disrupted.

Also, hard-freeze warnings were issued for all the states along the US Gulf Coast, where most of the refining capacity is located.

Also adding to the support was concern over a possible production cut by Russia as President Vladimir Putin on Tuesday signed a decree that bans the supply of oil and oil products to nations participating in the price cap from February 1 for five months.

Russia might cut oil output by 5 per cent to 7 per cent in early 2023 as it responds to price caps, according to Deputy Prime Minister Alexander Novak last Friday.