China Relaxes Zero Covid – Could Brent Break $90 Again

Brent oil may need a Fed pivot and a successful China reopening to turn the corner, but prices could bounce up quickly above $90 per barrel if these two conditions are met.

“In part, the decline in oil prices follows a sharp deceleration in forward looking macro indicators such as Asian export growth,” analysts at BofA Global Research stated in their report.

“Demand concerns have filtered into oil markets while Russian exports seem so far unaffected by EU sanctions, compared to our initial assessment of a one million barrel per day supply reduction. Also, China reopening, a key factor adding 700,000 barrel per day to global oil consumption growth next year in our balances, could be one of fits and starts,” the analysts added in the report.

“With low levels of natural immunity/vaccination and limited hospital capacity, there is a risk that the rebound in Chinese oil demand could take longer than expected,” the analysts continued.

In a briefing note sent to Rigzone on Friday, Goldman Sachs highlighted that China had relaxed some of its Covid rules last week but warned against expecting a full reopening of China’s economy anytime soon.

The briefing outlined that Goldman Sachs Research had identified four reopening scenarios and pointed out that the most likely of these sees China reopening in April 2023 after steady preparations at the beginning of the year.

Weekly Covid-19 cases in China increased in the week commencing November 28 following seven consecutive weeks of declines, according to the World Health Organization (WHO). As of December 12, 4.53pm CET, there have been 9.92 million confirmed cases of Covid-19, with 30,879 deaths, WHO figures showed. The country has administered a total of 3.46 billion vaccine doses, as of November 29, according to that latest WHO data.

At the time of writing, the price of Brent crude stood at $79.05 per barrel. The last time Brent closed above $90 per barrel was on November 16, when the commodity closed at $92.86 per barrel.