Oil prices rise on weaker US dollar as China doubles down on zero-Covid policy

UAE energy minister tweets his support for the Opec+ production cut on Monday, calling it a 'technical' decision

Brent, which rallied by more than 10 per cent after the Opec+ production cut, fell by about 7 per cent last week. Getty

Oil prices rose on Monday on a weaker US dollar, despite signs that China would most probably continue with its zero-Covid policy, which has battered global supply chains.

Brent, the benchmark for two thirds of the world’s oil, was trading 0.65 per cent higher at $92.23 a barrel at 6.59pm UAE time.

West Texas Intermediate, the gauge that tracks US crude, was up 0.62 per cent at $86.14 a barrel.

The US Dollar Index, a measure of the value of the greenback against a weighted basket of major currencies, was down more than 1 per cent at 112.17. A weaker dollar makes oil cheaper for holders of other currencies.

On Sunday, China’s President Xi Jinping hailed the country’s zero-Covid policy as a major achievement during an opening address to the Chinese Communist Party Congress.

The policy had “protected the people’s health and safety to the greatest extent possible”, Mr Xi said.

Frequent pandemic lockdowns in major cities in China have slowed down the world’s second-largest economy and biggest crude oil importer.

Services activity in China contracted in September after three straight months of expansion, amid new coronavirus outbreaks and stricter containment measures, an industry survey showed last week.

The Caixin China General Services Business Activity Index fell to 49.3 in September, from 55 in the previous month. A figure above 50 indicates an expansion in activity.

“China’s persistence in maintaining a zero-Covid policy won’t win much love in the oil and broader commodity markets, though there may be a downside limit on how much worse Chinese oil demand could get,” Emirates NBD economists said in a research note on Monday.

“Worries over global demand overran concern that supply will fall flat in coming months as oil prices dropped last week.”

Demand concerns resulted in a sell-off in oil markets last week, with Brent losing about 6 per cent of its value.

Earlier this month, oil prices rallied after the 23-member Opec+ group of oil producers announced an output cut of 2 million barrels per day.

The move led to criticism from the White House, which said it would “review” its relationship with Opec leader Saudi Arabia.

Saudi Arabia aims to support the stability of global oil markets, King Salman bin Abdulaziz said during a speech, the Saudi Press Agency reported on Sunday.

“Our country is working hard, within its energy strategy, to support the stability and balance of global oil markets, as petroleum is an important element in supporting the growth of the global economy,” King Salman said.

Several other Opec-member countries have also supported the group’s decision, including Suhail Al Mazrouei, the UAE's Minister of Energy and Infrastructure.

“I would like to clarify that the latest Opec+ decision, which was unanimously approved, was a pure technical decision, with no political intentions whatsoever,” Mr Al Mazrouei said in a tweet on Monday.

On Sunday, Oman’s Energy Ministry said that Opec+ decisions were based on purely economic considerations and the realities of supply and demand in the market.

“The recent decision of Opec+ to cut production is in line with its previous decisions in terms of its reliance on market data and its variables, which was important and necessary to reassure the market and support its stability,” the Omani ministry tweeted.

“The working mechanisms of the Opec+ group require that its decisions be taken by consensus and unanimity of all member states.”

Bahrain's Minister of Oil and Environment, and Special Envoy for Climate Affairs, Mohamed bin Dainah, also endorsed the decision, saying it came after a consensus among all member states of the alliance.