By Peter Nurse
Investing.com — Oil prices soared Monday, rebounding after the previous week’s sharp losses, after China moved to reopen its borders, boosting the outlook for fuel demand from the world’s largest crude importer.
By 08:55 ET (13:55 GMT), futures traded 3.3% higher at $76.19 a barrel, while the contract rose 3% to $80.91 a barrel.
China announced over the weekend that it has completely reopened its international borders for the first time since 2020, ending the strict zero-COVID policy that had severely hit local economic growth during the period of the pandemic.
This is expected to boost domestic economic activity, prompting a sharp recovery in demand for energy as the country returns to pre-pandemic levels of production.
Chinese officials also announced a big rise in import quotas for the coming year, suggesting it is preparing for a big rebound in demand as it reopens its economy – potentially a 20% increase from 2022 import levels, according to Reuters.
The full impact of the change in China’s travel policies could be made clear next week, as Chinese travelers gear up to travel without restrictions during the Lunar New Year holiday for the first time since 2020.
Domestically, about 2 billion trips are expected during the Lunar New Year season, nearly double last year’s and 70% of 2019 levels, Beijing said.
China will also release its first batch of trade data for December on Friday, which will include oil import data. While these numbers won’t be affected by the latest move, Beijing started easing policies last month.
Elsewhere, a brief threat to supply in the spot market quickly evaporated after a ship that had run aground in the Suez Canal was freed by tugboats, allowing traffic through the vital waterway to resume quickly.
Monday’s rally followed a drop last week of more than 8% for both oil benchmarks, their biggest weekly declines at the start of a year since 2016 as traders fretted about the possibility of a global recession.
The aggressive monetary policy tightening by a number of central banks to combat soaring inflation has brought about fears of hard economic landings, mainly in the U.S. and Europe, two of the major sources of energy demand in the world.
“Speculators also appear to have taken advantage of the recent weakness to enter the market,” said analysts at ING, in a note. “The latest positioning data shows that speculators increased their net long in ICE Brent by 17,753 lots over the last reporting week, to leave them with a net long of 161,456 lots as of last Tuesday.”
The U.S. on Friday supported hopes that the Federal Reserve will reduce its expected interest rate hike in February, but attention this week will center on Thursday’s release of the latest as traders look for further signs inflation is cooling.