Oil prices rose more than 3% on Monday, driven by China’s decision to reopen its borders, which could increase demand and eclipse fears of a global recession.
The rally is part of a broader recovery in confidence in risk assets, supported both by the reopening of the world’s largest crude importer and hopes for less aggressive interest rate hikes in the United States.
Brent crude was up $2.46, or 3.13%, at $81.03 a barrel, while U.S. West Texas Intermediate crude was up $2.51, or 3.4%, at $76.28. .
“If the recession is avoided, global oil demand and demand growth will remain resilient,” said Tamas Varga of oil broker PVM, 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 support for prices,” he said.
The rally followed a drop last week of more than 8% in both benchmark oil prices, their biggest weekly declines at the start of a year since 2016.
As part of a “new phase” in the fight against COVID-19, China opened its borders over the weekend for the first time in three years. Nationwide, some 2 billion trips are expected during the Lunar New Year season, nearly double that of last year and 70% of 2019 levels, according to Beijing.
Despite Monday’s rebound, there are still concerns that the massive influx of Chinese travelers could cause another spike in COVID infections, while broader economic concerns also linger.
These concerns are reflected in the structure of the oil market. Both the short-term contracts for Brent and US crude are trading at a discount to the following month, a structure known as “contango,” which often indicates bearish sentiment.
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