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U.S. Storms, Chinese Lifting of Restrictions Boost Oil

Plus500 | Tuesday 27 December 2022

One of the world’s most crucial Commodity markets seems to be in for yet another shakeup. A confluence of global factors from the United States to China converged to push the price of petroleum upward on Tuesday. Let’s take a closer look:


North America’s Polar Vortex

In recent days, the North American landmass has been battered by extreme winter weather that has kept millions of people at home. The high winds and icy temperatures blowing down from the Arctic have caused massive disruption to business as usual across the United States. Holiday flights have been grounded throughout the country, more than a million citizens were left without electricity, and dozens even lost their lives. 

In addition to the drastic human toll, these extreme weather conditions have also been making their mark on the price of Oil. Two of the largest refineries in the United States, Marathon Galveston Bay and Motiva Port Arthur, ceased operations due to the weather advisory on Friday. This means that the United States’ daily Oil (CL) production will be cut by 1.8 million barrels for the duration of the outage. With this disruption to supply, it may be no surprise that Oil has been on the climb in recent days. (Source:Bloomberg)

China Loosens COVID Restrictions

The People’s Republic of China’s severe ‘zero-COVID’ policy has drawn interest and criticism from around the globe throughout the years of the pandemic. However, recent signs are emerging that Beijing’s most senior policymakers may be ready to set aside the strict quarantine and travel restriction measures once and for all. In turn, this perhaps raises the outlook for the country’s near-term demand for fossil fuels.

Today it was announced that beginning on the 8th of January, travelers from abroad will only be required to present a negative PCR test in order to enter the country, whereas previously, strict quarantine measures were in place. While the Communist Party has progressively lifted domestic restrictions, perhaps in response to the widespread protests seen in recent months, this latest change in COVID-19 policy could signify the world’s second-largest economy finally fully opening back up to global trade after nearly three years of isolation. 

The country’s bigwigs seem now to be prioritising the struggling Chinese marketplace over containing the spread of the novel coronavirus, downgrading the disease’s official classification. (Source:The New York Times)

With the combination of supply concerns emanating from a snow-battered United States and the hopes that a recovery of fossil fuel demand from China would soon be in sight, Oil got a boost of nearly 0.7% on Monday as of the time of writing. International benchmark Brent Oil (EB) rose in tandem by 1.1% as well as of the time of writing. 

At this point, it is unknown whether the price of black gold will be able to keep up this momentum. The strains of winter weather in the United States are expected to ease somewhat in the coming days, and the near-term trajectory of the Chinese economy is as yet unclear. Where Oil and Brent Oil head in the final trading days of 2022 remains to be seen. 

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