Crude Oil Flat; Tight Supply, Weak Dollar Balance Out China’s COVID Woes

By Peter Nurse — Oil prices stabilized Monday, with tight supplies and weakness in the U.S. dollar helping balance out the news that China is sticking with its restrictive COVID policy, likely hitting demand growth from the world’s largest crude importer.

By 09:35 ET (14:35 GMT), traded 0.1% higher at $92.72 a barrel, while the contract rose 0.1% to $98.61.

Chinese health officials stated over the weekend that the country will maintain its current zero-COVID strategy, meaning strict movement curbs and potential lockdown measures to curb the spread of the virus will remain in place.

The news sent prices around $1/barrel lower as it dashed hopes which had emerged last week that the country’s hierarchy was considering a pivot to a less restrictive policy, given China’s economic activity has been considerably impacted by the stance, denting its demand for oil.

This follows the country reporting 5,436 COVID cases on Sunday, up 27% from the day before to the most since May 2, when Shanghai was in the midst of its months-long lockdown.

Data released earlier Monday showed that China’s crude oil imports rose to the highest level since May, although the volume for the first 10 months was still 2.7% below the same period a year earlier.

Still, weakness in the U.S. dollar has provided some support. The , which tracks the greenback against a basket of six other currencies, dropped 0.2% to 110.525 Monday, adding to the almost 2% losses seen at the end of last week.

A weak greenback lifts demand for dollar-denominated commodities, like oil, by making it more cheaper for foreign buyers.

Speculators also appear to have a growing appetite for the oil market, as managed money in the Brent contract increased by over 22,000 lots over the last reporting week to leave them with a net long of 227,665 lots as of last Tuesday, the largest net long since June.

“Speculators appear to be getting increasingly constructive on the oil market likely due to the expectation that the market will tighten due to a combination of the EU ban on Russian oil soon coming into effect as well as OPEC+ supply cuts,” said analysts at ING, in a note.

The Organization of Petroleum Export Countries and allies, a group known as OPEC+, are next scheduled to get together near the start of December and has indicated that it stands ready to support crude prices with more supply cuts if needed.

The group agreed to cut output by 2 million barrels a day at its last meeting in early October, seeking to support falling prices.

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