As China reopens its borders, oil prices rise on optimism

The demand outlook was boosted by China’s decision to reopen its borders. This surpassed global concerns about a global recession. Oil prices climbed over 2% Monday.

This rally is part of an overall recovery in risk sentiment, supported both by the reopening of the largest crude oil importer on the planet and expectations for more-aggressive U.S. interest rate increases based on recent U.S. data. Asian stocks are rising while the dollar falls.

Brent crude oil was at $80.79 per barrel, up 2.8% by 0913 GMT, while U.S. West Texas Intermediate crude crude crude increased $2.04 or 2.8% to $75.81.

“If we avoid recession, global oil demand will be avoided and demand growth will continue to grow,” stated Tamas Varga, an oil broker at PVM. He also said that Monday’s gains were primarily due to developments in China.

He stated that the gradual opening of China’s economy would provide additional support for prices.

This rally came after a more than 8 percent drop in both benchmark oil prices last week, which was their largest weekly drop since 2016.

China’s borders were opened over the weekend as part of a “new phase” to fight COVID-19. Beijing estimates that domestically around 2 billion people will travel during the Lunar New Year period, which is nearly twice what was done last year and almost 70% of 2019, according to Beijing.

Even though Monday’s rebound in oil prices was positive, it is possible that another spike in COVID infection rates could be caused by a large number of Chinese tourists. However, economic worries abound.

These concerns reflect in the oil market structure. The Brent crude contract and the U.S. crude contracts for the immediate term are both tradings at a discount over the following month. This structure is known as contango which usually indicates a bearish sentiment.


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