Traders Unfazed By China Lockdowns, More Gains For Crude

Meanwhile, a North American deep freeze stokes supply concerns: File Image/Pixabay

Covid concerns – the latest involving an outbreak in China - were yet again not enough to derail another session of crude price gains on Thursday, with sentiment still focused on the Organization of the Petroleum Exporting Countries' (OPEC) questionable ability to increase output at a time when U.S. stockpiles are dwindling.

Brent rose $1.19 cents, or 1.5 percent, to settle at $81.99 per barrel, and West Texas Intermediate gained $1.61, or 2.1 percent, to $79.46.

Also on Thursday, Brent's six-month backwardation stood at about $4 per barrel, its widest since late November and a strong sign of a bullish market.

U.S. futures rose to the highest closing price in seven weeks following news that a deep freeze in Canada and the northern U.S. was disrupting oil flows from fields in North Dakota and West Texas.

This prompted some traders to search for replacement barrels, pushing prices higher for grades such as Bakken and WTI.

But it's unclear what, if any, significant effect the disruptions will have on the North American market: no sooner were they announced than EOG Resources, on the U.S.'s biggest shale producers, stated it was ready to increase output as quickly as this summer if circumstances warranted.

Meanwhile, China's lockdown of several cities in an attempt to stem what media called the worst Covid outbreak since the initial flare up in Wuhan didn't appear to have much impact in trading, possibly because omicron's weakness as a virus is causing hospitalization and death rates to remain relatively flat.

Rebecca Babin, senior energy trader at CIBC Private Wealth Management, remarked that oil "is fuelled by demand holding up well in the face of omicron, supply disruptions, OPEC+ spare capacity concerns and, most importantly, sentiment.

"It feels like we are setting up for a blow off to the upside."

Still, IHS Markit further lowered its projection for China's total oil demand in the first quarter of 2022 by 420,000 barrels per day (bpd), due to the lockdowns.