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Crude oil higher; Chinese Covid policy easing helps

Published 11/11/2022, 09:02 AM
Updated 11/11/2022, 09:03 AM
© Reuters.

By Peter Nurse -- Oil prices soared Friday, adding to the previous session’s gains on the news that China, the world’s top importer of crude, has eased some of its restrictive Covid curbs, potentially boosting the demand outlook.

By 09:05 ET (14:05 GMT), U.S. crude futures traded 3.1% higher at $89.15 a barrel, while the Brent contract rose 2.8% to $96.30.

Chinese health authorities announced earlier Friday that quarantine times for inbound travelers would be cut by two days to five days, while the penalty on airlines for bringing in infected passengers was dropped.

The country’s health officials had earlier this week reinforced the need to stick with its strict Zero-Covid policy with daily infections climbing to the highest level since April.

However, investors have been watching for clues on any relaxation of the policy, given the extent to which it has stunted economic activity this year, and today’s news has raised optimism that a more comprehensive relaxation will shortly happen.

A report from Reuters Friday stated that several Chinese refiners have asked Saudi Aramco (TADAWUL:2222) to reduce December-loading crude oil volumes, an indication of the stuttering economy limiting fuel demand in the world's second largest economy.

The benchmarks had closed higher Thursday after cooler-than-expected U.S. inflation data had raised hopes that the Federal Reserve would shortly slow the pace of its interest rate hikes, increasing the chances of the world's biggest economy avoiding a recession.

This also hit the U.S. currency hard, with the US Dollar Index, which tracks the greenback against a basket of six other currencies, dropping to the lowest levels since mid-September.

A weaker dollar makes the commodity cheaper for buyers holding other currencies, likely boosting demand.

A jump in demand could see substantially higher prices in the long term, with  Saudi Aramco chief Amin Nasser saying earlier Friday that he was concerned there was not enough investment in the oil and gas sector to meet this increase.

He added there has been a pick up in global demand since Covid lockdowns eased.

That said, the oil benchmarks are still on course to post a negative week, on ongoing concerns about slowing global economic growth, particularly in China with its frequent COVID outbreaks.

Data from Baker Hughes showing the number of U.S. oil rigs in play will be studied later in the session, as well as CFTC positioning numbers.

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