Oil edges higher as China’s Covid curbs weigh on demand
Oil benchmarks head for a weekly drop, with the market sliding this week to its lowest level since January
09 September 2022 - 08:31
bySonali Paul and Jeslyn Lerh
Support our award-winning journalism. The Premium package (digital only) is R30 for the first month and thereafter you pay R129 p/m now ad-free for all subscribers.
Singapore — Oil prices rose on Friday as investors considered Russia’s threat to halt oil and gas exports to some buyers, but crude was set for a second straight weekly decline as central banks’ aggressive rate hikes and China’s Covid-19 curbs weighed on demand.
Brent crude futures rose 27c, or 0.3%, to $89.42 a barrel by 3.30am GMT. US West Texas Intermediate (WTI) crude futures climbed 15c, or 0.2%, to $83.69.
“I think the sell-off in oil prices may come to a pause for now due to a recovery in risk sentiment across the board,” said CMC Markets analyst Tina Teng, adding that a weaker dollar and falls in bond yields have offered support for a rebound in risk assets.
“Fundamentally, a sharp decline in the US SPR suggests that undersupply is still a predominant issue in the physical oil markets, though recession fears may continue to weigh,” Teng added.
Both oil benchmarks were headed for a weekly drop of 4%, with the market sliding at one point this week to its lowest level since January.
The decline is capped by underlying supply tightness amid Russia’s threat to cut oil flows to any country that backs a price cap on its crude, as well as a small output cut by Opec and allies, and a weaker outlook for US oil production growth.
The US Energy Information Administration on Thursday said it expected US crude output to rise by 540,000 barrels per day to 11.79-million bpd in 2022, down from an earlier forecast for a 610,000 bpd increase.
Analysts said in light of the supply outlook, the sell-off, which sent the 50-day moving average below the 200-day moving average midweek in what is referred to as a “death cross”, may have been overdone, as demand in China, the world’s biggest oil importer, could recover swiftly.
“China demand is more difficult to predict, but a post-Covid reopening has previously seen a snap back rather than a gradual rise in demand. In that context the fundamentals appear skewed against the latest technical signals,” National Australia Bank analysts said in a note.
For now, curbs are tightening in China. The city of Chengdu on Thursday extended a lockdown for most of its more than 21- million residents, while millions more in other parts of China were urged not to travel during upcoming holidays.
Support our award-winning journalism. The Premium package (digital only) is R30 for the first month and thereafter you pay R129 p/m now ad-free for all subscribers.
Oil edges higher as China’s Covid curbs weigh on demand
Oil benchmarks head for a weekly drop, with the market sliding this week to its lowest level since January
Singapore — Oil prices rose on Friday as investors considered Russia’s threat to halt oil and gas exports to some buyers, but crude was set for a second straight weekly decline as central banks’ aggressive rate hikes and China’s Covid-19 curbs weighed on demand.
Brent crude futures rose 27c, or 0.3%, to $89.42 a barrel by 3.30am GMT. US West Texas Intermediate (WTI) crude futures climbed 15c, or 0.2%, to $83.69.
“I think the sell-off in oil prices may come to a pause for now due to a recovery in risk sentiment across the board,” said CMC Markets analyst Tina Teng, adding that a weaker dollar and falls in bond yields have offered support for a rebound in risk assets.
“Fundamentally, a sharp decline in the US SPR suggests that undersupply is still a predominant issue in the physical oil markets, though recession fears may continue to weigh,” Teng added.
Both oil benchmarks were headed for a weekly drop of 4%, with the market sliding at one point this week to its lowest level since January.
The decline is capped by underlying supply tightness amid Russia’s threat to cut oil flows to any country that backs a price cap on its crude, as well as a small output cut by Opec and allies, and a weaker outlook for US oil production growth.
The US Energy Information Administration on Thursday said it expected US crude output to rise by 540,000 barrels per day to 11.79-million bpd in 2022, down from an earlier forecast for a 610,000 bpd increase.
Analysts said in light of the supply outlook, the sell-off, which sent the 50-day moving average below the 200-day moving average midweek in what is referred to as a “death cross”, may have been overdone, as demand in China, the world’s biggest oil importer, could recover swiftly.
“China demand is more difficult to predict, but a post-Covid reopening has previously seen a snap back rather than a gradual rise in demand. In that context the fundamentals appear skewed against the latest technical signals,” National Australia Bank analysts said in a note.
For now, curbs are tightening in China. The city of Chengdu on Thursday extended a lockdown for most of its more than 21- million residents, while millions more in other parts of China were urged not to travel during upcoming holidays.
Reuters
Asian stocks remain buoyant and oil holds firm at pre-invasion levels
Oil prices jump as Opec+ agrees to small oil output cut
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.
Most Read
Related Articles
Oil hits 7-month low on reduced demand, rate hike fears
Crude reverses losses after Russian supply warning
Oil prices rise as Russia and Europe face off over exports
Published by Arena Holdings and distributed with the Financial Mail on the last Thursday of every month except December and January.