Oil Rises On China's Token Modification Of Covid Rules But Incurs Weekly Loss

by Ship & Bunker News Team
Friday November 11, 2022

An unexpected modification of China's zero tolerance Covid infection policy despite rising cases proved to be advantageous to crude trading on Friday, although it wasn't enough to prevent a weekly loss.

Brent settled up $2.32 at $95.99 per barrel but fell 2.6 percent on the week and West Texas Intermediate settled up $2.49 at $88.96 per barrel but declined nearly 4 percent on the week, after it was learned that China's Communist Party agreed to shorten quarantine times for close contacts of cases and inbound travellers by two days, as well as eliminate a penalty on airlines for conveying infected passengers.

This was despite infection rates rising to their highest since the lockdown in Shanghai earlier this year and Beijing and Zhengzhou reporting record daily cases.

Jim Ritterbusch, president of Ritterbusch and Associates, said, "China's changing response to stubbornly high COVID-19 cases has added to the oil market's price volatility and, should this new Chinese policy continue, the energy complex could be poised to erase most of this week's decline."

Still, ANZ Research said in a note that in addition to work-from-home orders reducing fuel demand, travel across China was minimal due to citizens eager to avoid the risk of being ordered into quarantine.

In this light, China's relaxation of curbs seemed more of a token than a re-thinking of a policy that most health experts say is impossible to achieve, and as if to set analytical thinking back on track prince Abdulaziz bin Salman, energy minister for Saudi Arabia, told Bloomberg TV that members of the Organization of the Petroleum Exporting Countries (OPEC) saw "uncertainties" in the global economy in advance of the cartel's December meeting.

He said with regards to OPEC oil production, "Our theme is being cautious," and he added that "it's about being responsible and not losing sight of what the market requires."

Bin Salmon went on to note that "China is closing more cities and the jury is still out" on whether it will end its policy of lockdowns, and he made mention of banks increasing their rates in a bid to curb inflation as another factor that warrants a cautious outlook on a volatile commodity market moving forward.

In other oil related news on Friday, Baker Hughes reported that the number of total active drilling rigs in the U.S. rose by 9 to 779 this week, the largest single-week increase since the end of July; this was 223 rigs higher than the rig count this time in 2021, and 296 rigs lower than the rig count at the beginning of 2019 prior to the pandemic.

Additionally, according to the Energy Information Administration, crude output in the U.S. rose in the week to November 4 to 12.1 million barrels per day (bpd); U.S. production levels are up 400,000 bpd so far this year and just 600,000 bpd less versus a year ago.