Loosening COVID Restrictions In China Pushes Oil Prices Up

Oil prices rose slightly on Tuesday, owing to expectations of a demand recovery in China as the world’s second-largest nation eases severe COVID-19 restrictions and skepticism that OPEC+ countries’ higher output target will alleviate tight supplies.

At 0601 GMT, Brent oil futures were up 28 cents, or 0.2 percent, at $119.79 a barrel. WTI oil futures in the United States were up 31 cents, or 0.3 percent, at $118.81 a barrel. On Monday, the benchmark reached a three-month high of $120.99. After two months of harsh lockdowns to halt breakouts of the Omicron strain, Beijing and Shanghai have begun resuming normalcy in recent days. Beijing lifted traffic restrictions in most districts; moreover, restaurants opened for dine-in service on Monday.

Supply to Increases Considerably

“With autos back on the roads in important cities and ports gradually returning to regular operation in China, we may see an increase in fuel usage,” said Tina Teng, a CMC Markets analyst. Saudi Arabia, the world’s top oil exporter, increased the official selling price (OSP) for its flagship Arab Light crude to Asia by $2.10 from June to a $6.50 premium above Oman/Dubai quotations in July; slightly below an all-time high set in May amid fears of Russian supply interruptions. Last week, OPEC+ agreed to increase output by 648,000 barrels per day in July and August, or 50% more than previously anticipated.

In a note, Stephen Innes, managing partner at SPI Asset Management, wrote, “While the new higher monthly objectives continue to be driven by proportional contributions from all countries (including Russia), it is implausible to expect a rise near to the headline total.”

According to a preliminary poll released on Monday, US oil stocks dipped last week, but gasoline and distillate inventories rose. The enhanced aims were all members of OPEC+. Many countries, especially Russia, subject to Western sanctions, have limited room to increase output.