Oil prices post a weekly decline, but China easing Covid curbs offers support

Positive US inflation data also boosted crude futures on Friday

An oil well in Texas. US crude inventories reached their highest levels since July 2021. AFP
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Oil prices settled higher on Friday but recorded a weekly loss as China, the world’s largest crude importer, eased some Covid-19 curbs.

Brent, the benchmark for two thirds of the world’s oil, closed up 2.5 per cent at $95.99 a barrel on Friday. West Texas Intermediate, the gauge that tracks US crude, rose 2.9 per cent to $88.96 a barrel.

China, the world’s second-largest economy, has shortened quarantine periods for close contacts of cases and inbound travellers, state news agency Xinhua reported on Friday, citing a circular issued by the State Council joint prevention and control mechanism against Covid-19, a government body that co-ordinates the country's response against the virus.

Adjusting the Covid response does not mean loosening prevention and control against the virus, the circular said.

The relaxation of measures comes as new cases surge in the country’s urban centres, including in the capital Beijing.

“It's been quite the volatile week for oil, with Chinese rumours not going away, restrictions and mass testing being undertaken once more and the global economic outlook seemingly changing on a daily basis,” Craig Erlam, senior market analyst at Oanda, said in an earlier research note.

Friday’s rise in crude prices was also supported by positive US economic data.

US consumer inflation cooled slightly to 7.7 per cent over the past 12 months, easing pressure on households and offering the US Federal Reserve room to slow the pace of its interest-rate increases in the coming months.

The year-over-year gain was the smallest since January, the US Labour Department said on Thursday. Consumer prices rose 0.4 per cent in October, the same increase as in September, the department reported.

“Oil markets remain steady, with physical markets continuing to price in supply scarcity, offsetting financial crude markets that are pricing in recession,” Ehsan Khoman, head of emerging markets research at MUFG Bank, said in a research note last week.

Crude markets have tightened after the Opec+ group of 23 oil producing countries removed 2 million barrels per day from the market in anticipation of slowing demand.

However, oil prices came under pressure last week on a larger-than-expected build-up in US crude stocks.

US commercial crude oil inventories, excluding those in the Strategic Petroleum Reserve, increased by 3.9 million barrels in the week that ended on November 4, their highest levels since July 2021, according to the US Energy Information Administration.

“Supplies are still mostly tight and that should help limit the selling pressure that is hitting crude prices,” said Edward Moya, senior market analyst at Oanda.

Updated: November 13, 2022, 8:36 AM