•US Energy unit rejects resupply stockpile
Oil prices jumped about two per cent yesterday after China’s move to reopen its borders boosted the outlook for fuel demand and overshadowed global recession concerns.
The rally was part of a wider boost for risk sentiment supported by both the reopening of the world’s biggest crude importer and hopes for less-aggressive increases to U.S. interest rates, with equities rising and the dollar weakening.
Brent crude was up $1.53, or two per cent, at $80.10 a barrel. U.S. West Texas Intermediate crude rose $1.69, or 2.3 per cent, to $75.46.
“The gradual reopening of the Chinese economy will provide an additional and immeasurable layer of price support,” said Tamas Varga of oil broker PVM.
The U.S. Department of Energy has rejected the first batch of bids from oil companies to resupply a small amount of oil to the nation’s emergency crude oil stockpile in February, according to a DOE spokesperson. The DOE last month had said it would purchase up to three million barrels for delivery to the Strategic Petroleum Reserve in February, the first buy since last year’s record 180-million-barrel release to tame U.S. pump prices.
“Following review of the initial submission, DOE will not be making any award selections for the February delivery window,” the spokesperson said in an emailed statement. DOE will only select bids that meet the required crude specifications and that are at a price that is a good deal for taxpayers,” the spokesperson said. Details about the submissions were not available.
President Joe Biden had announced the 180 million barrel sale in late March to combat surging gasoline prices after the February invasion of Ukraine by Russia, the world’s largest exporter of fossil fuel. That sale shrunk levels in the SPR to the lowest since 1984. The administration has said it wants to repurchase the oil at around $70 a barrel.
The rally followed a drop last week of more than eight per cent for both oil benchmarks, 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. Domestically, about two billion trips are expected during the Lunar New Year season, nearly double last year’s and 70 per cent of 2019 levels, Beijing says.
In oil-specific developments, China issued a second batch of 2023 crude import quotas, according to sources and documents reviewed by Reuters, raising the total for this year by 20 per cent from the same time last year.
Despite Monday’s oil rebound, there is still concern that the massive flow of Chinese travellers could cause another surge in COVID infections while broader economic concerns also linger.
Those concerns are reflected in oil’s market structure. Both the near-term Brent and U.S. crude contracts are trading at a discount to the next month, a structure known as contango, which typically indicates bearish sentiment.
Meanwhile, U.S. households see weaker near-term inflation and are expecting notably less spending, even as they foresee their incomes continuing to rise, the New York Federal Reserve said yesterday in its December Survey of Consumer Expectations.
The bank reported that respondents to its monthly survey said they see inflation a year from now at five per cent, from 5.2per cent in November, for the lowest reading since July 2021.
“The NY Fed data should be supportive for oil prices, as it suggests that inflation is peaking,” said Phil Flynn, analyst at Price Futures group.