Oil rises on demand optimism as China borders reopen

  • China reopens borders in final farewell to zero COVID
  • Hopes of slower interest rate increases in the US increase risk sentiment
  • The oil increase follows a more than 8% decline last week

LONDON, Jan 9 (Reuters) – Oil prices climbed more than 2% on Monday as China’s move to reopen its borders boosted demand prospects and overshadowed worries about a global recession.

The rally was part of a broader rise in risk-on sentiment supported by both the reopening of the world’s biggest crude oil importer and hopes of less aggressive increases in U.S. interest rates based on recent U.S. data, with Asian shares rising and the dollar weakening.

Brent crude was up $2.22, or 2.8%, at $80.79 a barrel by 0913 GMT, while US West Texas Intermediate crude was up $2.04, or 2.8%, at $75.81.

“If 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 rise.

“The gradual reopening of the Chinese economy will provide an additional and immeasurable layer of price support,” he said.

The rally followed a fall last week of more than 8% for both oil benchmarks, their biggest weekly decline 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. Domestically, around 2 billion trips are expected during the Lunar New Year season, nearly double last year’s and 70% of 2019 levels, Beijing says.

Despite Monday’s oil price rally, concerns remain that the massive influx of Chinese travelers could cause another spike in COVID infections while broader economic worries also persist.

These concerns are reflected in the oil’s market structure. Both the short-term Brent and US crude oil contracts are trading at a discount to next month, a structure known as contango, which typically indicates bearish sentiment. ,

Reporting by Alex Lawler Additional reporting by Florence Tan and Jeslyn Lerh Editing by David Goodman

Our standards: Thomson Reuters Trust Principles.

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