Oil increases as optimism about demand grows as China’s borders open

The reopening of borders in China, the largest crude importer in the world, on Monday led to an increase in oil prices, which helped to offset concerns about a worldwide recession. China is the world’s largest importer of crude oil. As of 07:45 GMT, the price of a barrel of Brent crude had increased by $1.49, which is equivalent to a 1.9% increase, to $80.06; the price of a barrel of West Texas Intermediate crude in the United States rose by $1.43, which is equivalent to a 1.9% increase, to $75.20. The dollar is losing value as investors anticipate more gradual increases in interest rates in the United States, which is helping financial markets. When the value of the dollar declines, investors holding other currencies can purchase commodities priced in dollars at a lower overall cost. Last week, prices for both Brent and WTI fell by more over 8%, marking the most one-week drop they have experienced at the start of a year since 2016.

“Crude oil prices recovered from the losses they sustained the previous week,” said Avtar Sandu, senior manager for commodities at Phillip Futures. “The economic reopening in China and less aggressive monetary tightening prospects from the Federal Reserve set a positive tone for demand recovery,” Sandu added. China reopened its borders over the weekend for the first time in three years as part of what it is calling a “new chapter” in the fight against the COVID-19 virus. According to Beijing’s estimates, there will be over 2 billion trips taken within China during the Lunar New Year holiday season, which is roughly quadruple the number of journeys taken during the same time period in 2018. According to aviation data supplier Cirium, airlines have increased their international seat capacity to and from China by 9.5% over the course of the past week as they ramp up flights following the opening of the country’s borders.

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In spite of Monday’s rise in the price of oil, there is continued worry that the enormous influx of Chinese tourists could lead to yet another spike in the number of those infected with COVID. In addition, broader economic worries persisted. The structure of the market for benchmark oil futures reflects these worries to some extent. The front-month futures for both Brent and WTI are currently in contango, which occurs when current prices are lower than prices for later-delivery contracts. This situation often implies that bearish sentiment is prevalent within the market. “The price of oil has most certainly climbed as a result of increasing confidence over China’s reopening; nonetheless, concerns regarding a potential recession in the wider global economy continue to exist. In the near future, price fluctuations in oil are anticipated to occur as a direct result of this uncertainty “As Serena Huang, head of APAC analysis for Vortexa, explained:

The price of energy futures such as crude oil, refined products, and natural gas has dropped significantly since the beginning of the new year. This is due to the fact that traders have reevaluated their short-term concerns regarding the cold weather and have dumped contracts out of fear of supply shortages. Baker Hughes Co (BKR.O), an energy services company, reported on Friday that the number of working oil and natural gas rigs in the United States was reduced by seven by energy companies in the previous week. This was the largest weekly reduction seen since September of 2021.

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