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Futures Movers: Oil ends higher on hopes for increased China demand

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Crude-oil futures end higher on Monday after posting an overall loss for last week, with traders betting on increased demand as Beijing continued to ease COVID-19 restrictions and open up the world’s second biggest economy.

Price action

West Texas Intermediate crude for February delivery
CL00,
+1.38%
,
CL.1,
+1.38%
,
CLG23,
+1.38%

rose 86 cents, or 1.2%, to settle at $74.63 a barrel on the New York Mercantile Exchange, with front-month prices for the U.S. benchmark up a third straight session.

March Brent crude
BRN00,
+0.11%
,
BRNH23,
+0.11%
,
the global benchmark, added $1.08, or 1.4%, to $79.65 a barrel on ICE Futures Europe.

Back on Nymex, February gasoline
RBG23,
+2.43%

advanced nearly 2.2% to $2.2929 a gallon, while February heating oil
HOG23,
+1.09%

tacked on nearly 1.1% to $3.036 a gallon.

February natural gas
NGG23,
+5.90%

climbed 5.4%, to $3.91 per million British thermal units.

What’s driving markets

Oil prices rose Monday as traders hoped that Beijing’s further easing of COVID-19 restrictions would open up China’s economy — the world’s biggest crude importer — and help boost energy demand.

It looks like the oil rally has been driven by the news that China reopened its borders to travelers over the weekend, said Colin Cieszynski, chief market strategist at SIA Wealth Management.

“Traders appear to have taken this move as a sign that China is serious about reopening its economy, which could boost its demand for energy and resources in general,” he told MarketWatch.

And “since this is being driven by a change in the demand outlook, this rally appears sustainable in the near term, but as we know events can quickly come out of nowhere to change things,” said Cieszynski.

The rally comes after both Brent and West Texas Intermediate fell more than 8% last week on worries about a global economic downturn and as warmer weather in the northern hemisphere was seen reducing heating demand.

“Oil prices are finally catching a flyer over the China border reopening as the removal of local restrictions, inter/intra-provincial mobility normalization, lifting of border restrictions between China/HK/Macau and international travel reopening are strong tailwinds for oil markets,” said Stephen Innes, managing partner at SPI Asset Management.

Outside China, “recent global activity data have generally been more resilient than feared, suggesting the world is not in a recession,” said Innes. “So prices may have room to climb, especially with the dollar under renewed pressure on the expectation of another rate downshift at the February FOMC.”

Investors concerns about a hard economic landing for the U.S. have abated since Friday’s jobs data, which suggested the labor market could stay relatively healthy and wage inflation ease at the same time.

The improved sentiment has boosted traders’ risk appetite, hitting the dollar and thus providing additional support to commodity prices — such as crude — that are denominated in the greenback. In Monday dealings, the ICE U.S. Dollar index
DXY,
-0.72%

fell 0.8% to 103.038.

U.S. “rates markets are pricing in a lower ‘terminal rate’ for the [Federal Reserve’s policy rate this year, largely thanks to the soft wage print in Friday’s jobs report,” said Tyler Richey, co-editor at Sevens Report Research.

For now, $70 remains a key support level to watch for WTI oil due to the Biden administration’s “SPR Put,” as the Energy Department has committed to repurchasing oil barrels as prices drop towards the low $70s or upper $60s, he told MarketWatch. “The potential upside for oil futures remains limited right now though as economic uncertainty and recession worries continue to weigh on the broader demand outlook for 2023.”

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