Oil closes higher, with fewer restrictions in China and weakening dollar

Oil futures contracts closed higher on Friday, 11, boosted by signs of easing restrictions to contain covid-19 in China. In addition, the continued devaluation of the dollar, which has been falling sharply since yesterday, gives strength to prices, since the commodity is quoted in the American currency.

December WTI crude closed up 2.88% ($2.49) at $88.96 a barrel on the New York Mercantile Exchange (Nymex), while Brent for January 2023 rose 2.42 % ($2.32), at $95.99 a barrel, on the Intercontinental Exchange (ICE). In the week, the retreats were 3.94% and 2.75%, respectively.

In Commerzbank’s assessment, market participants have been alternating between hope and disappointment regarding any relaxation of China’s zero Covid policy this week, giving rise to high volatility.

The first small steps towards easing regulations that were announced by the Chinese government this morning have allowed oil prices to rise again, although this in no way constitutes a deviation from the country’s rigid policy, he said.

Capital Economics is also “cautious” about the announcements, and says it is an attempt to contain the negative economic impact of the restrictions, but it doesn’t mean the policy is being abandoned. “If cases increase even more, restrictions could intensify again”, points out the consultancy.

On momentum from the dollar’s fall, Capital Economics reckons that if Federal Reserve officials (Fed) pull back against market optimism about falling inflation, commodity prices could easily give back their recent gains.

Commerzbank points out that forecasts from the International Energy Agency (IEA) next week should confirm that the market situation is tightening again, as the European Union’s embargo on Russian oil approaches. In addition, there is the price cap on Russian oil shipments that will come into effect after December 5, he points out.

“One can assume that it will be increasingly difficult for Russia to find buyers for its oil. So far, the IEA has predicted that Russia’s daily production will decline by 1 million barrels from October to January. In addition, the IEA is likely to lower its expectations for non-Organization of Petroleum Exporting Countries (OPEC+) production,” points out Commerzbank.

In the case of the United States, the number of wells and oil platforms in activity rose nine in the week, to 622, according to information from Baker Hughes, a company that provides services to the sector.