Oil prices open higher on hopes of higher Chinese demand

Investors are keenly awaiting Russia's response to a G7 price cap

Brent crude rose 3 per cent on Monday after the Opec+ alliance decided to stick with its output policy. Getty

Oil prices opened higher for a second consecutive day on Tuesday as China, the world's biggest importer of crude, continued to ease stringent Covid-19 measures despite a rise in infections.

Brent, the benchmark for two thirds of the world’s oil, was trading 0.5 per cent higher at $83.05 a barrel at 9.07am UAE time. West Texas Intermediate, the gauge that tracks US crude, was up 0.4 per cent at $77.27 a barrel.

Brent crude rose more than 3 per cent on yesterday after the Opec+ alliance decided to extend its output oil policy as sanctions on Russian crude came into effect on Monday.

Oil futures gave up nearly all of their gains later in the session.

“Risk appetite on Wall Street is fading away and that might prevent crude prices from pushing much higher right now,” said Edward Moya, a senior market analyst at Oanda.

“The fear that the US economy is headed towards a recession will be a drag on all the pent-up demand that will be released on the China reopening.”

China, the world’s second-largest economy, is lifting lockdowns and easing testing requirements in major cities, including Beijing and Shanghai, even as it faces record high infection numbers.

About three years after the start of the pandemic, China has persisted with its zero-Covid policy, which has dampened the country’s short-term growth prospects.

Investors are keenly awaiting Russia’s response to the price cap on exports of the country’s crude.

After months of negotiations, the EU and the Group of Seven (G7) advanced countries have placed a $60 price cap on Russian crude to limit Moscow’s ability to fund its military offensive in Ukraine.

Russia, which has been selling discounted barrels of crude to India and China, said it would not sell its oil under the price ceiling.

Russian oil exports rose to 7.7 million bpd in October — up 165,000 bpd from the previous month — on higher shipments to the EU, China and India, the International Energy Agency said in its latest oil market report.

“Energy traders are waiting to see how Russia responds,” said Mr Moya. “The crude demand outlook will remain volatile, and concerns that the economic downturn across Europe is about to get worse.”

On Sunday, the Opec+ alliance of 23 oil-producing countries said it would stick to current output cuts of 2 million bpd.

The group said it was ready to address “market developments” and support the “balance of the oil market and its stability if necessary”.

All decisions taken by the Opec+ alliance are based on the “needs of the global oil market in a bid to ensure stability”, Kuwait's Oil Minister Bader Al Mulla was quoted as saying by official news agency Kuna.

The group will continue to “monitor” global market developments to determine appropriate measures, Mr Al Mulla said.