May 18, 2024

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Oil extends gains as China signals further easing of Covid rules

Dimas Ardian/Bloomberg

Oil rose for a second day on signs of further easing of China’s Covid-19 restrictions and as a key North American pipeline remained shut.

West Texas Intermediate climbed above $74 a barrel after closing 3% higher on Monday, the first gain in seven sessions. China’s ambassador to the US said the nation will continue relaxing its curbs and will welcome more international travelers soon, lifting demand hopes in the world’s top oil importer.

China’s rapidly dismantling of its Covid Zero policy has led to a sharp recovery in the world’s biggest domestic air-travel market, although a surge in cases has raised some concerns about energy consumption. Economists are also expecting China to loosen fiscal and monetary policy to bolster growth.

“The reopening cheer and attendant higher oil-demand projection will overshadow fears of a drag” on growth, said Vishnu Varathan, Asia head of economics and strategy at Mizuho Bank Ltd. in Singapore. There’s also “coordinated policy stimulus that’s priming an economic revival,” he said.

Crude is still on track for its first back-to-back quarterly decline since mid-2019 on concerns about the global economic outlook, with thin liquidity in the oil market exacerbating price swings. Investors will be watching a reading on US consumer prices later Tuesday for clues on the path of monetary policy.

TC Energy Corp. has yet to submit a restart plan needed to resume operation of the Keystone pipeline following an oil spill. The conduit has now leaked more crude than any other pipeline on US land in the past 12 years.

Prices:
  • WTI for January delivery advanced 1.4% to $74.16 a barrel at 6 a.m. in London.
  • Brent for February settlement gained 1.5% to $79.13 a barrel.

Time spreads continue to signal ample near-term supply, with the prompt spread for WTI and Brent holding in contango. The gap between the two nearest contracts for the global benchmark was 29 cents a barrel in contango, compared with $1.58 a barrel in backwardation about a month earlier.

Freezing conditions will remain across Northern Europe through the week, placing a heavy strain on power grids and adding to the demand outlook for fuels. The UK had asked for two standby coal-fired units to run on Monday before canceling the request amid signs of relief from winter weather.

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