Oil prices were climbing on Friday after China eased some COVID-19 restrictions, with support for the commodity also stemming from relief surrounding U.S. inflation data that weighed on the dollar.
Crude prices, however, were still on track to post a loss for the week.
Price action
- West Texas Intermediate crude for December CL.1, +3.42% CLZ22, +3.42% delivery jumped $3.09, or 3.6%, to $89.56 a barrel, after Thursday’s close of $86.47 a barrel on the New York Mercantile Exchange. The front-month contract was looking at a decline of 3.5% for the week, according to FactSet data.
- January Brent crude BRNF23, +2.79% BRN00, +2.79% the global benchmark, climbed $2.80, or 3%, to $96.47 a barrel, after settling up 1.1% to $93.67 a barrel on ICE Futures Europe on Thursday. For the week, the contract traded more than 2% lower.
- Back on Nymex, December gasoline RBZ22, +1.41% prices rose 2.3% to $2.6264 a gallon, while December heating oil HOZ22, +1.40% rose 2.7% to $3.6669 a gallon.
- December natural gas NGZ22, +3.27% was up 2.7% at $6.407 per million British thermal units, looking to end the volatile trading week little changed from the $6.40 settlement on Nov. 4.
Market drivers
The biggest development overnight was “news of China starting to potentially back away from its ‘zero-COVID’ policy and easing a number of restrictions on travel and other activities,” said Colin Cieszynski, chief market strategist at SIA Wealth Management.
Prices for crude, as well as copper, climbed on this development “which changes investors’ outlook toward demand for resources,” he said in a market note.
China announced Friday that it was cutting quarantine time for incoming travelers to five days from seven, with 3 days of home isolation. Those travelers will also now be allowed to enter with one negative PCR test taken within 48 hours of traveling, down from two.
And airlines will no longer be threatened with a two-week long flight suspension if they bring in five or more positive travelers.
However, those measures came as Beijing shut city parks and moved classes online for students, amid a fresh wave of COVID-19 cases, while more than 5 million remain locked down in the manufacturing hub of Guangzhou.
Sentiment for oil is still “sullied by the rise of COVID case counts in China and anticipated lockdowns,” said Stephen Innes, managing partner at SPI Asset Management, in market commentary. “Rolling lockdowns across heavily populated areas in China penalize mobility and oil demand even more than economic activity.”
Since traders are “hyper-sensitive to lockdowns in the world’s largest oil importer, this could temporarily hold the oil market’s top-side ambition in check,” he said. But “unquestionably,” oil’s in a much better place than Thursday.
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On Friday, a decline in U.S. dollar versus most major currencies continued to provide support to dollar-denominated oil prices.
The dollar fell another 1.1%, based on the ICE Dollar Index DXY, -1.32% on Friday. Thursday’s softer-than-forecast U.S. inflation reading triggered a 1,200-point advance for the Dow Jones Industrial Average DJIA, -0.37%, its best day since March 2020.
Oil got a “reprieve from the weaker U.S. dollar and a significant repricing lower in U.S. recession risk as a soft landing looks far more credible” with the possiblity that the Federal Reserve may “dial down” its interest-rate hikes, said Innes.
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