NEW YORK: Oil prices rose more than 1 percent on Monday after China’s move to reopen its borders boosted the outlook for fuel demand and overshadowed worries about a global recession.
The rally was part of a broader risk-off sentiment boost supported by both the reopening of the world’s biggest crude importer and hopes of less aggressive U.S. interest rate hikes, with stocks rising and the dollar weakening.
Brent crude was up $1.29, or 1.6%, at $79.80 a barrel by 1:29 p.m. EST (1829 GMT). U.S. West Texas Intermediate crude was up $1.32, or 1.8%, at $75.09.
“The gradual opening of the Chinese economy will provide an additional and incalculable level of price support,” said Tamas Varga of oil broker PVM.
The rally followed last week’s decline of more than 8% for both oil benchmarks, their biggest weekly losses at the start of the 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, about 2 billion trips are expected during the Lunar New Year, nearly double last year and 70% of 2019 levels, Beijing says.
In oil-specific developments, China issued a second batch of crude import quotas for 2023, according to sources and documents reviewed by Reuters, raising the total for this year by 20 percent from the same period last year.
Despite Monday’s rebound in oil, concern remains that the massive influx of Chinese travelers could trigger another spike in COVID infections, while broader economic concerns remain.
These concerns are reflected in the structure of the oil market. Both Brent and U.S. crude futures are trading at a discount to next month, a structure known as contango, which usually indicates bearish sentiment.
Meanwhile, U.S. households see weaker near-term inflation and expect significantly less spending, even as they anticipate their incomes will continue to rise, the New York Federal Reserve said Monday in its December Survey of Consumer Expectations.
The bank said respondents to its monthly survey said they see annual inflation at 5%, down from 5.2% in November, for the lowest reading since July 2021. “NY Fed data should be supportive on oil prices as it suggests inflation is peaking,” said Phil Flynn, analyst at Price Futures Group.