Oil Rises On Trader Confidence That China Will Rethink Its Covid Lockdown Policies

Meanwhile, additional cuts from OPEC are anticipated: File Image/Pixabay

China's top health officials claiming they will adjust Covid lockdown measures to reduce adverse impact on citizens' lives was taken to heart by oil traders on Tuesday, the result being a modest uptick in prices.

The market was also affected by lingering expectations that the Organization of the Petroleum Exporting Countries (OPEC) will agree to enact more production cuts when it meets next week.

West Texas Intermediate settled up 96 cents at $78.20 per barrel, while Brent was at $84.43 per barrel by 20:00 GMT versus Monday's settlement of $83.19.

With Chinese president Xi Jinping blaming lower-level government officials for being too strict on his Zero-Covid policy and thousands of people across the country protesting the measures, health officials took the unusual step of suggesting that the lockdowns would be modified - a move made easier by infections declining as vaccinations among elderly Chinese ramped up.

Amrita Sen, director of research at Energy Aspects, told Bloomberg Television on Tuesday that China's oil demand was falling due to its lockdowns and that "Chinese crude imports may go below 9 million barrels per day in January."

She added, "Our view remains that zero Covid will be in place through the winter," and that despite the vows of health officials the Communist-led country won't reopen until April.

As for the notion that OPEC will respond to what is widely perceived as a deteriorating global market, Sen pointed out that OPEC does "not like contango and that is what has raised market expectations of deeper cuts…..I'm not ruling out deeper cuts - that's of course on the table - but I would say that's not our base case."

Meanwhile, Jeff Currie, global head of commodities at Goldman Sachs, said Tuesday that despite all the headwinds oil has suffered in recent months, the medium-term oil outlook for 2023 was "very positive" and the bank plans to "stick to our guns" with a $110 per barrel Brent  forecast for next year.

As for the immediate future, Currie speculated that "I think the key point with China right now is the risk that you get a forced reopening: that means it'll be self-imposed lockdowns where people don't want to get on trains, don't want to get to work and demand goes further south."

As such, Currie said that with regards to OPEC's meeting on Dec. 5 that "I think there is a high probability that we do see a cut."

All but ignored on Tuesday was the European Union's ongoing failure to strike a deal on the proposed price cap for Russian oil; one EU diplomat told Reuters that "The Poles are completely uncompromising on the price, without suggesting an acceptable alternative….clearly there is growing annoyance with the Polish position."