Oil set for weekly loss as China’s Covid outbreak shakes outlook

Oil headed for a weekly loss of over 6 per cent as China continues to grapple with swelling Covid cases, weighing on the outlook for demand.

Daily infections have climbed to the highest since April as China’s top leaders reinforced the need to stick with Covid Zero, although they urged officials to be more targeted with restrictions. Investors have been watching for clues on any relaxation of the policy, with markets whipsawed recently by rumors of easing.

Still, West Texas Intermediate rose on Friday, edging toward $86 a barrel amid broader market gains after slower-than-projected US inflation. That’s led to speculation that the Federal Reserve could temper its interest rate hikes.

“Crude got some lift from the revival of Fed pivot hopes and increased risk appetite following the softer US October inflation data,” said Vandana Hari, founder of Vanda Insights in Singapore. “But the growing Covid cases and lockdowns in China will limit price gains.”

Oil has lost about a third of its value since early June on concerns over a global economic slowdown and aggressive monetary tightening by central banks. The US inflation read also led to a decline in the dollar, making commodities priced in the currency more attractive to investors.

In a meeting of the new Politburo Standing Committee chaired by President Xi Jinping, the members called for “more decisive” and targeted measures to curb the spread of the virus so as to resume normal life and production as soon as possible, according to Xinhua News Agency. Daily infections have exceeded 10,000 for the first time since April.

The market is also monitoring an uncertain supply outlook. Production cuts this month by the Organization of Petroleum Exporting Countries and allies will be followed by European Union sanctions on Russia crude flows in December.