Oil Rebounds On China Reopening And Hope Of A Kinder, Gentler U.S. Fed

Meanwhile experts wonder whether inflation is peaking: File Image/Pixabay

The second week of the New Year began more promisingly for crude futures, with traders on Monday causing a modest 1 percent-plus rise in prices due to China reopening its borders – signalling a possible boon to fuel demand.

This, combined with hopes that the U.S. Federal Reserve would enact less severe interest rates caused Brent to rise $1.08, or 1.4 percent, at $79.65 per barrel; West Texas Intermediate rose 86 cents, or 1.2 percent, to $74.63 per barrel.

Beijing told media that domestically, about 2 billion trips are expected during the Lunar New Year season in China, nearly double last year's and 70 percent of 2019 levels.

The world's biggest crude importer also made headlines on Monday for issuing a second round of 2023 crude import quotas, raising the total for this year by 20 percent compared to the same time last year.

According to China's Ministry of Commerce, 44 companies were given 111.82 million tonnes in import quotas in this round, with Zhejiang Petrochemical Corp being granted the largest quota of this batch at 20 million tonnes.

Still, bearish signs for the global crude market were still evident on Monday: the near-term Brent and WTI contracts are trading at a discount to the next month in a structure known as contango; plus, the New York Federal Reserve in its December Survey of Consumer Expectations said U.S. households are expecting notably less spending, even as they foresee their incomes continuing to rise.

However, the bank noted that respondents to its monthly survey predict inflation will sit at 5 percent a year from now compared to the 5.2 percent they predicted in November, the lowest reading since July of 2021, and this prompted Phil Flynn, senior market analyst at Price Futures Group Inc., to remark that "The NY Fed data should be supportive for oil prices, as it suggests that inflation is peaking."

For his part, Jamie McGeever, columnist at Reuters, pointed out that the price of Brent crude dipped to below year-ago levels for the first time in two years last week, possibly suggesting that "broader inflation has peaked and could fall rapidly in the coming months."

Also on Monday, Citigroup Inc. and Societe Generale estimated that Brent will see over $1 billion of inflows during the annual rebalancing of the largest commodity indexes, a period usually characterized by volatile flows across raw materials markets.