Oil rallied earlier in the week following China’s announcement to revive consumption following the abandonment of tough Covid containment policies and the Biden administration’s plan to start replenishing the nation’s strategic crude oil reserves.
West Texas Intermediate oil rose to $75 a barrel after falling 4% in the last two sessions of last week. The Chinese President said that recovery and an increase in consumption should be a priority, and the leaders concluded the meeting to set priorities for 2023. Such announcements are likely to help support energy demand even if the number of Covid cases rises and the reopening process becomes less smooth.
The US Department of Energy announced that they are starting to replenish the Strategic Petroleum Reserve by purchasing 3 million barrels at a fixed price. The replenishment follows President Joe Biden’s release of the Strategic Petroleum Reserve to help deal with rapidly rising domestic energy prices that have skyrocketed since Russia’s invasion of Ukraine.
Oil is on course to decline for the second time in a month as recession worries in the US and Europe intensify and central banks continue their hawkishness. At the same time, Russian flows have so far proved resilient, as energy prices driven by the G7 and the European Union have not resulted in massive losses. Among major buyers, India said it did not expect disruptions.
However, China, which is looking to increase consumption as a key economic priority for 2023, is helping to improve the outlook for oil demand.
Time spreads continue to be in place when futures are trading higher than the underlying asset, indicating abundant short-term supply. Brent’s fast spread – the gap between the two nearest contracts – was 43 cents per barrel in contango. Last week, this figure was 35 cents per barrel.
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