Oil jumps 3% on demand optimism as Chinese borders reopen

  • China reopens its borders for a final farewell to zero-COVID
  • Hopes of a slowdown in US interest rate hikes bolster risk sentiment
  • Oil’s gain follows a decline of more than 8% last week

LONDON, Jan 9 (Reuters) – Oil extended its gains on Monday, up around 3% after China’s decision to reopen its borders boosted fuel demand prospects and overshadowed recession worries world.

The rally was part of a broader strengthening in risk sentiment supported by both the reopening of the world’s largest crude importer and hopes for less aggressive US interest rate hikes, with stocks rising and a falling dollar.

Brent crude rose $2.29, or 2.9%, to $80.86 a barrel as of 11:50 GMT, while U.S. West Texas Intermediate crude rose $2.46, or 3.3 %, at $76.23.

“If recession is averted, global oil demand and demand growth will remain resilient,” said oil broker PVM’s Tamas Varga, adding that developments in China were the main reason for Monday’s gains.

“The gradual reopening of the Chinese economy will provide an additional and immeasurable layer of price support,” he said.

The rally followed a drop last week of more than 8% for the two oil benchmarks, their biggest weekly declines at the start of the year since 2016.

As part of a “new phase” in the fight against COVID-19, China opened its borders this weekend for the first time in three years. Domestically, around 2 billion trips are expected during the Lunar New Year season, nearly double last year and 70% of 2019 levels, according to Beijing.

In oil-specific developments, China has issued a second batch of crude import quotas for 2023, according to sources and documents reviewed by Reuters, raising the total for this year by 20% from the same period l last year.

Despite Monday’s oil rebound, fears remain that the massive influx of Chinese travelers could cause another spike in COVID infections as broader economic concerns also linger.

These concerns are reflected in the structure of the oil market. Short-term Brent and U.S. crude contracts are both trading at a discount to next month, a pattern known as contango, which typically indicates bearish sentiment. ,

Reporting by Alex Lawler Additional reporting by Florence Tan and Jeslyn Lerh Editing by David Goodman

Our standards: The Thomson Reuters Trust Principles.

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