- Oil prices are set for their biggest weekly gain in almost two months after multiple consecutive weeks of losses.
- It seems that China is responding to extraordinary protests in multiple cities by easing Covid restrictions, a move that should boost oil demand.
- News that the U.S. government may pause sales from its strategic petroleum reserves only added to the upward pressure on oil prices.
After a string of weekly declines, this week crude oil prices look set for a gain on news that China is relaxing Covid-related restrictions.
Indeed, Reuters reported earlier today that some Chinese cities where Covid cases are still on the rise are relaxing their testing and quarantine rules, following protests in several cities. In some of these, protesters clashed with police.
Bloomberg reported today that as a result of these developments, oil prices could book their biggest gain in almost two months, helped by reports that the U.S. administration may pause sales from the strategic petroleum reserve.
An earlier report said that the Department of Energy is looking to cancel or delay sales from the SPR for the period 2024 to 2027 in a bid to give itself time to replenish reserves that declined substantially this year because of the 180-million-barrel release program aimed at easing prices at the pump.
“It doesn’t make sense for us to be releasing oil while we’re trying to refill the SPR,” Doug MacIntyre, the DoE’s Deputy Director for the Office of Petroleum Reserves, said in testimony before the Energy and Natural Resources Committee. “We can’t fill and release from the same site at the same time.”
The DoE has said it will begin refilling the SPR when oil prices fall to $70 per barrel, “on a consistent basis”, according to energy security advisor Amos Hochstein.
West Texas Intermediate is currently trading above $80 per barrel, after last week it fell to $76 per barrel amid rising concern about Chinese demand. It might, however, take a while for prices to fall to $70. In fact, many analysts believe prices are going to go higher from here.
Again, the biggest reason is China. If the relaxation of Covid measures continues, the market could see pent-up demand unleashed while supply remains constrained, which could push prices much higher indeed.
The G7 price cap on Russian oil also won’t help keep prices lower after Russia declared it would not sell oil to countries that enforce the cap.