Oil rose about $1 a barrel on Thursday, supported by the potential for OPEC+ to cut supply further and as easing COVID curbs in China raised the likelihood of higher demand from the world’s top crude importer.
Crude also gained support from dollar weakness prompted by euro zone factory data and the Federal Reserve Chair saying the pace of U.S. interest rate hikes could be scaled back.
A weaker dollar makes oil cheaper for other currency holders and tends to support risk assets.
The Organization of the Petroleum Exporting Countries (OPEC) and allies including Russia, a group known as OPEC+, meets on Dec. 4. Though sources said on Wednesday that a policy change is unlikely, some feel that a further cut cannot be ruled out.
“I believe the OPEC+ meeting forces shorts to cover, but the consensus is unchanged quota levels,” said Tamas Varga, of oil broker PVM.
“Perceived easing of Chinese COVID restrictions, favourable factory data from the euro zone and the resultant dollar weakness provide continuous price support.”
Brent crude was up 94 cents, or 1.1%, at $87.91 a barrel by 1250 GMT while U.S. West Texas Intermediate crude futures added $1.18, or 1.5%, to $81.73.
The apparent shift in China’s zero-COVID strategy raises optimism over a Chinese oil demand recovery. The cities of Guangzhou and Chongqing announced an easing of COVID curbs on Wednesday.
“The signals coming from China also look very positive,” said Craig Erlam of brokerage OANDA. “Any modest softening in its COVID-zero policy will and should be welcomed.”
Both oil benchmarks have posted three consecutive weekly declines,lthough the market has rebounded strongly this week after hitting its lowest in nearly a year on Monday. Brent touched $80.61, its lowest since Jan. 4.
The prospect of a lower price cap on Russian oil is also lending support, analysts said. European Union countries are edging towards a deal on the price cap ahead of a Dec. 5 deadline.
A slide in U.S. crude inventories in weekly data also underpinned the price rally. [EIA/S]