December 11, 2023

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Oil is up more than 1% on optimism about demand as China reopens borders

  • China reopens its borders in a final farewell to the zero-COVID tournament
  • Hopes of a slowdown in US interest rate hikes add to the risk sentiment
  • Oil’s gains came after it fell more than 8% last week
  • The New York Fed survey found a decline in near-term inflation expectations

NEW YORK (Reuters) – Oil prices rose more than 1 percent on Monday after the reopening of China’s borders boosted expectations for fuel demand and overshadowed fears of a global recession.

The rally was part of a broader boost to risk sentiment buoyed by the reopening of the world’s largest crude importer and hopes for softer increases in US interest rates, as stocks rose and the dollar weakened.

Brent crude rose $1.08, or 1.4 percent, to $79.65 a barrel. US West Texas Intermediate crude rose 86 cents, or 1.2%, to $74.63.

“The gradual reopening of the Chinese economy will provide an infinite additional layer of price support,” said Tamas Varga of oil brokerage PVM.

The rally followed last week’s drop of more than 8% for both oil benchmarks, their largest weekly drop at the start of a year since 2016.

As part of a “new phase” in the fight against COVID-19, China opened its borders over the weekend for the first time in three years. Domestically, trips are expected to reach 2 billion during the Lunar New Year season, nearly double last year and 70% of 2019 levels, Beijing says.

In oil-related developments, China issued a second batch of crude import quotas for 2023, according to sources and documents seen by Reuters, raising the total for this year by 20% over the same period last year.

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Although oil rebounded on Monday, there remains concern that the massive influx of Chinese travelers could cause a further surge in COVID infections while broader economic concerns remain.

These concerns are reflected in the structure of the oil market. The near-term Brent and US crude contracts are trading at a discount compared to the next month, a structure known as a contango, which usually indicates bearish tendencies. And

Meanwhile, US households see inflation weakening in the near term and expect to spend significantly less, even as their incomes are expected to continue to rise, the New York Federal Reserve said Monday in its December survey of consumer expectations.

The bank reported that respondents to the monthly survey said they see inflation a year from now at 5%, from 5.2% in November, the lowest reading since July 2021.

“The New York Fed data should be supportive of oil prices, as they indicate that inflation has peaked,” said Phil Flynn, an analyst at Price Futures Group.

(Reporting by Stephanie Kelly) Additional reporting by Alex Lawler, Noah Browning, Florence Tan and Jesselyn Lear. Editing by Cynthia Osterman and Lisa Shumaker

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