Oil rallies with commodities on optimism over China

Oil jumped above US$90 a barrel as commodities and stocks in Asia rallied on optimism over China potentially easing its Covid restrictions.

West Texas Intermediate futures surged almost 3 percent, putting crude on track for a second weekly advance, after rumors circulated on social media that China may change its Covid Zero policy. Oil got a further boost from news that the nation is working on plans to scrap a system that penalises airlines for bringing virus cases into the country.

China is the world’s biggest crude importer.

China’s Covid Zero strategy relies on lockdowns and mass testing to stamp out infections and has weighed heavily on the nation’s economy this year. Bank of China International estimates the country’s oil demand will decline by 400,000 barrels a day in 2022 due to virus curbs.

Chatter about easing Covid Zero earlier in the week sparked gains across commodity markets and prompted the country’s top health body to say the strategy remains the overall approach to fighting Covid-19.

“The market senses something is on the go here, thinking where there is smoke, there is fire,” said Stephen Innes, managing partner at SPI Asset Management. “No one wants to be late to the China re-opening party.”

Oil futures have swung in a wide arc in recent sessions along with broader market trends and shifts in the dollar, while lackluster trading volumes have led to more volatility. Investors are also grappling with a tightening supply outlook and concerns over a global economic slowdown. – Bloomberg