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(Bloomberg) — Oil jumped toward $90 a barrel as commodities and equities in Asia rallied on more speculation that China may ease its Covid restrictions.
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West Texas Intermediate futures rose around 2%, putting crude on track for a second weekly gain, after rumors circulated on social media that China may change its Covid Zero policy. Similar chatter 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.
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Crude has lost almost a third of its value since June as slowdown concerns weighed on demand. Oil futures have swung in a wide arc in recent sessions along with broader market trends and shifts in the dollar. Lackluster trading volumes have also had an impact on volatility.
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 Ltd. estimates the country’s oil demand will decline by 400,000 barrels a day this year due to virus curbs.
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Investors are also assessing a tightening supply outlook and concerns over a global economic slowdown. The OPEC+ alliance will make sizable cuts to output from this month, which will be followed by European Union sanctions on Russian crude flows from December.
European Central Bank President Christine Lagarde said that a “mild recession” was possible following more rate hikes from the Federal Reserve and the Bank of England. Saudi Arabia has also trimmed its oil prices for December sales to Asia, highlighting some concern over the outlook for demand. The kingdom sells most of its crude under long-term contracts to the region.
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The US and its partners agreed to set a price cap on Russian crude at a fixed level, but it’s not yet clear at what level it will be set, according to officials familiar with the matter. The mechanism has been championed by the US and is designed to cut Moscow’s energy revenues after its invasion of Ukraine.
The “overstated” discounts of Russian crude against benchmark prices means the US and its allies may need to set a higher price cap for it to be effective, according to Goldman Sachs Group Inc. Meanwhile, the UK Treasury said it will prohibit the provision of insurance, brokerage and shipping services when EU sanctions take effect unless Russian oil is bought at or below the cap.
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