Crude Oil Rises as Optimism Outweighs Chinese COVID Fears

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By Adedapo Adesanya

The crude oil market rose on Monday as optimism around China relaxing its COVID-19 restrictions outweighed fears of a global recession that would weigh on energy demand.

Brent crude gained 76 cents to settle at $79.80 a barrel, while the United States West Texas Intermediate (WTI) crude rose by 90 cents to $75.19 per barrel.

China, the world’s top crude oil importer, is experiencing its first of three expected waves of COVID-19 cases after it relaxed mobility restrictions but said it plans to step up support for the economy in 2023.

The country is in the first of an expected three waves of COVID cases this winter. Further waves are expected to come as people follow the tradition of returning en masse to their home areas for the Lunar New Year holiday next month.

China had not reported any COVID deaths since December 7, when it abruptly ended most restrictions key to a zero-COVID tolerance policy following unprecedented public protests.

As part of the easing of the zero-COVID curbs, mass testing for the virus has ended, casting doubt on whether official case numbers can capture the full scale of the outbreak.

As COVID infections in the world’s second-largest economy surge following the abrupt relaxation of harsh restrictions, this will hit businesses and consumers, while a weakening global economy hurts Chinese exports.

Also, European Union (EU) energy ministers on Monday agreed to a gas price cap after weeks of talks on the emergency measure that has split opinion across the bloc as it seeks to tame the energy crisis.

The deal follows weeks of talks on the emergency measure that has split opinion across the bloc as it seeks to tame the energy crisis.

The energy ministers agreed that the cap on gas prices would be triggered when benchmark gas prices spike to €180 per megawatt hour.

The US Federal Reserve and European Central Bank raised interest rates last week and promised more. The Bank of Japan, meanwhile, modified its yield curve control tolerance range while holding its ultra-low benchmark interest rates steady.

Last week, the Bank of England and the European Central Bank raised interest rates to fight inflation.

The Bank of England hiked its interest rate by half a point to 3.5 per cent, while the ECB raised its benchmark interest rate for the fourth time this year to 2.5 per cent.

This came a day after the world’s largest oil producer and consumer, through its central bank, the US Federal Reserve, indicated it will raise interest rates further next year, even as the economy slips toward a possible recession.

Oil was supported by plans by the US Energy Department that it will begin repurchasing crude for the Strategic Petroleum Reserve (SPR), the first purchases since releasing a record 180 million barrels from the reserve this year.

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