Oil Surges on Hope for China’s Economy; recession fears limit profits

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  • Traders process the reopening of the Chinese economy
  • EU countries agree to gas price cap, Czech Republic says
  • Rising interest rates, recession fears weigh in
  • US begins strategic reserve purchases

NEW YORK, Dec. 19 (Reuters) – Oil prices rose on Monday as optimism surrounding China to ease COVID-19 restrictions outweighed fears of a global recession weighing on energy demand.

China, the world’s largest crude oil importer, is experiencing its first of three expected waves Covid-19 cases after Beijing eased mobility restrictions, but said it planned to step up support the economy in 2023.

“There is no doubt that demand is being negatively impacted,” said Naeem Aslam, an analyst at brokerage Avatrade. “Not all is so negative, however, as China has vowed to combat all pessimism about its economy and will do whatever it takes to boost economic growth.”

Brent crude gained 76 cents to settle at $79.80 a barrel, while US West Texas Intermediate crude rose 90 cents to $75.19.

Prices rose previously gains before rising again in a volatile session.

“The reality here is that we still fear a major recession looming on the horizon that hasn’t gone away,” said Bob Yawger, director of energy futures at Mizuho. “It’s going to be hard to make big profits here.”

Oil rose to its record high of $147 a barrel earlier this year after Russia invaded Ukraine in February. It has since erased most of this year’s gains as supply concerns were wiped out by fears of a recession.

That is what the energy ministers of the European Union said on Monday Agree to a gas price cap, after weeks of talks over the emergency measure that have divided opinion across the bloc as it attempts to tame the energy crisis.

The limit can be activated from February 15, 2023, the document detailing the final deal revealed. The deal is formally approved in writing by countries, after which it can enter into force.

The US Federal Reserve and the European Central Bank raised interest rates last week and promised more. The Bank of Japan, meanwhile, could change his ultra-dovish demeanor when it meets on Mondays and Tuesdays.

“The prospect of further interest rate hikes will hurt economic growth in the new year and thus curb demand for oil,” says Stephen Brennock of oil broker PVM.

Oil was backed by the US energy department which said on Friday it will start buying back crude oil for the Strategic Petroleum Reserve – the first purchases since releasing a record 180 million barrels from the reserve this year.

Reporting by Stephanie Kelly; Additional reporting by Alex Lawler; Edited by David Goodman, Barbara Lewis, Andrea Ricci, Deepa Babington and Mark Porter

Our standards: The Thomson Reuters Principles of Trust.

Stephanie Kelly

Thomson Reuters

A New York-based correspondent for the U.S. crude oil market and a member of the energy team since 2018 covering the oil and fuel markets and federal renewable fuels policy.

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