Brent gains as China eases some Covid-19 restrictions
The front-month ICE Brent January futures contract expired yesterday and was replaced by the February contract, which has increased by $0.50/bbl on the day, to $87.38/bbl at 09.00 GMT.
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Upward pressure:
Chinese authorities relaxed Covid-19 restrictions in some Guangzhou districts following a series of protests in the southern part of the city. The decision was taken despite an increasing number of new Covid-19 cases. The recent move suggests a better outlook for oil demand and demonstrates China's willingness to modify its stringent zero-Covid policy, Saxo Bank says.
Commercial Us crude stocks fell by a massive 12.58 million bbls to 419.08 million bbls in the week to 25 November, according to official Energy Information Administration (EIA) data. This was the biggest weekly decline since June 2019. The draw exceeded an estimate of a 7.85 million-bbl drop by the American Petroleum Institute.
The market is still unsure about whether OPEC+ will decide to cut production at its upcoming meeting scheduled on 4 December. Some market participants anticipate that OPEC+ will announce a rollover of the current production agreement and maintain that a further cut is highly unlikely.
In October, OPEC+ members reduced production quotas by 2 million b/d. Some market participants argue that the group will wait for final details around the price cap on Russian oil to materialise before deciding to reduce output.
Brent has drawn some support from US Federal Reserve Chairman Jerome Powell hinting that the central bank is likely to announce a smaller rate hike this month. A less hawkish statement from Powell could help to lift equity and oil markets.
Downward pressure:
With just four days remaining until the deadline, the EU has yet to agree on a price cap for Russian seaborne oil. Poland, Lithuania, Estonia and other members of the EU have advocated for a price cap of $30/bbl, arguing that this would be closer to Russia's production costs.
Meanwhile, the US and other G7 members have been pushing for a $65-70/bbl price cap, stating that a far-lower price cap should be approached cautiously.
According to a Bloomberg report, Russian crude and condensate production climbed to 10.9 million b/d in November - the highest since March. Russia’s President Vladimir Putin has managed to reverse all of the country’s production losses, says Bloomberg’s energy and commodities columnist Javier Blas. He anticipates that Russia will find ways to bypass the G7 price cap and keep production higher than expected.
By Nithin Chandran
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