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Futures Movers: Oil futures inch higher as traders weigh potential for changes to China’s COVID restrictions

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Oil futures edged higher Monday, shaking off early weakness, as traders weighed talk of potential changes to China’s COVID-19 restrictions, which are likely to have an impact on the nation’s energy demand.

Price action

West Texas Intermediate crude for December delivery
CL.1,
+0.29%

CL00,
+0.29%

CLZ22,
+0.29%

rose 70 cents, or 0.8%, to $93.31 a barrel on the New York Mercantile Exchange.

January Brent crude
BRN00,
+0.18%

BRNF23,
+0.18%
,
the global benchmark, was up 65 cents, or 0.7%, at $98.22 a barrel on ICE Futures Europe.

Back on Nymex, December gasoline
RBZ22,
-1.09%

fell 0.4% to $2.7229 a gallon, while December heating oil
HOZ22,
-2.39%

shed 1.1% to $3.8711 a gallon.

December natural gas
NGZ22,
+10.33%

jumped 12.2% to $7.182 per million British thermal units after Friday’s more than 7% climb.

Market drivers

Speculation around the potential easing of COVID-19 curbs by China was credited with lifting oil futures last week. News reports over the weekend, however, said Beijing would largely stick to its policies.

Health officials on Saturday said China would stick to its “dynamic clearing” policies, Reuters reported. Asked about a potential change in policy in the near term, Hu Xiang, a disease control official, said the country’s measures are “completely correct, as well as the most economical and effective.”

“The oil market got hammered on Sunday night but rebounded on confusion as to whether China will lift some of its COVID-19 restrictions or not,” said Phil Flynn, senior market analyst at The Price Futures Group, in a daily note.

China’s strict COVID curbs, which have resulted in sweeping lockdowns of major cities and regions, have been cited as a drag on crude demand.

“When it comes to global demand, the one missing element has been China,” he said. “China’s zero COVID policy has no doubt played a part in some of the weaknesses in global demand. This in hindsight is probably a good thing because had China had their economy open this whole time, we probably wouldn’t have been able to meet global demand.” 

Last week, it was a weaker U.S. dollar and “unverified reports of China looking to ease its zero-COVID policy which really provided the boost to markets,” said Warren Patterson, head of commodities strategy at ING, in a note. “It appears these reports were nothing more than a rumor, after the National Health Commission said that China will stick to its zero-COVID policy.”

Given that, he said it was not surprising that oil markets opened lower on Monday.

Investors also noted China’s October trade data.

Crude oil imports in October averaged 10.2 million barrels a day, or mb/d, up from 9.83 mb/d in September and 8.9 mb/d in October last year, Patterson noted. It was the strongest monthly import figure since May, when 10.83 mb/d of inflows were seen. Crude oil imports over the first 10 months of the year are still down 2.7% versus the same stretch in 2021 to average 9.97 mb/d.

Chinese oil imports surged, said The Price Futures Group’s Flynn.

“There must be a reason why China all of a sudden is importing a lot of oil,” he said. China may be “getting ready for some type of reopening of the economy or at least getting ready for winter.”

“Whichever it is it doesn’t really matter,” said Flynn. “The thing is that global supplies of oil are still exceedingly tight with no room for error and any increased demand from China is going to make that situation even tighter.”

Natural gas rally

Natural-gas futures, meanwhile, extended their recent rally “on the back of colder weather forecasts,” said Christin Kelley, senior commodity analyst, at Schneider Electric, in a daily note.

“A winter storm is sweeping across the Northwest this week, bringing very cold temperatures and potentially more than 2 feet of snow,” she said. Additionally, “NOAA predicts colder-than-normal temperatures will blanket nearly the entire lower 48 states from November 12 to 20, which will boost heating demand for gas and drive tighter market conditions.”

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