Oil prices surge as OPEC maintains production cut targets and China’s thawing Covid-zero stance sparks hope of demand recovery

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Representatives of OPEC member countries attend a press conference after the 45th Joint Ministerial Monitoring Committee and the 33rd OPEC and non-OPEC Ministerial Meeting in Vienna, Austria, on October 5, 2022.
OPEC mentioned after its November assembly it is retaining its oil coverage unchanged from October. Vladimir Simieck/AFP/Getty Images

Oil futures jumped Monday, due to good news on the demand and supply aspect: OPEC will be sticking to its production cut target and China is softening its Covid-zero stance, which has sparked hopes of an outsized demand.

The OPEC+, or the Organization of the Petroleum Exporting Countries and its allies — together with Russia — said on Sunday it might persist with the oil production target the group set in October: to slash output by 2 million barrels per day from November through the end-2023.

The production cut is equal to about 2% of the world’s demand, and is the biggest discount for the reason that outbreak of COVID-19.

Back in October, OPEC+ had said that the choice was made “in light of the uncertainty that surrounds the global economic and oil market outlooks.” The transfer angered the US, and the White House accused the OPEC+ of “aligning with Russia.” That’s as a result of tighter oil supply usually drives up prices, which can assist prop up Russia’s war chest, regardless of sanctions and boycotts over its invasion of Ukraine.

On Sunday, the OPEC said the transfer was “purely driven by market considerations.”

US West Texas Intermediate oil futures had been up 1.1% at 80.84 a barrel at 10.46 p.m. EST on Sunday, whereas worldwide Brent crude oil futures had been additionally 1.1% greater at $86.47 a barrel — that is after leaping as a lot as 2.4% earlier within the day.

Hopes of China’s financial reopening from the pandemic are also boosting market sentiment.

The expectation that the world’s second-largest financial system is lastly eyeing an exit from Covid got here after the nation’s prime Covid official appeared to tone down the nation’s hardline Covid-zero strategy final week. Several Chinese cities — together with monetary hub Shanghai and tech hub Hangzhou — relaxed strict Covid testing rules over the weekend.

The events “point to the beginning of the end of zero-Covid” in China, though they don’t level to a fast reopening for all the nation, Nomura economists mentioned in a be aware on Monday. But there is definitely optimism surrounding the relief of Covid restrictions, Vishnu Varathan, Mizuho Bank’s head of economics and technique, wrote in a Monday be aware.

OPEC’s determination got here two days after the European Union and the G7 agreed on a $60 a barrel price cap for Russian crude oil — a transfer that creates uncertainty within the oil markets.

Prices might bounce to $120 a barrel subsequent yr if Russia can’t discover sufficient “dark ships” — vessels that flip off monitoring gadgets — to export crude covertly, analysts at Bernstein estimate. The value restrict on Russian crude takes impact on Monday.

However, Kremlin spokesman Dmitry Peskov mentioned Moscow is not going to settle for the worth cap and has made “certain preparations” to counter the transfer, TASS state news agency reported on Friday.

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