Oil prices rose on Monday as markets bet that China’s easing of COVID-19 measures would eventually boost demand for the country’s crude, while curbs on Russian oil shipments also appeared set to tighten supplies.
 
Crude prices closed lower last week, but rose sharply on Friday after China said it would ease some measures under its strict zero-COVID policy for the first time. The move raised expectations that the world’s biggest crude importer was positioning itself for an eventual easing of COVID restrictions.
 
But the country is still struggling with a resurgence in infections, which has seen renewed lockdown measures in some economic hubs. That kept any major gains in oil prices at bay on Monday.
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Brent crude futures rose nearly 1% to $96.68 a barrel in early Asian trading, while West Texas Intermediate crude futures rose 0.6% to $88.15 a barrel. Both contracts fell about 2.6% and 4% last week, respectively.

Hawkish signals from the Federal Reserve also weighed on oil prices, as Fed Governor Christopher Waller warned that while the bank was considering a slower pace of interest rate hikes in the coming months, it was not softening its stance on inflation.

 

Crude prices have fallen sharply from peaks above $130 this year, as rising interest rates and a series of COVID lockdowns in China have raised concerns about demand.

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But tightening supplies, especially after the Organization of Petroleum Exporting Countries announced a 2 million barrels per day production cut, fueled a price recovery. The cuts are expected to take effect in December, tightening supplies and likely benefiting prices.

A European ban on Russian oil shipments is also expected to come into effect in December, further tightening crude supplies as the year ends.

But while tighter supplies are expected to benefit prices in the coming months, downside risks to crude also remain. Worsening COVID infections in China could once again hamper the country’s economic activity, reducing demand for crude.

Rising interest rates and higher-than-expected inflation also pose potential risks to crude demand, especially if economic activity slows more than anticipated.

The U.S. government has also threatened to release more oil from its Strategic Petroleum Reserve to help lower gasoline costs.

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