Oil prices climb on news that China could ease COVID-19 restrictions

Breanne Deppisch

October 20, 02:39 PM October 20, 02:39 PM

Oil prices rose by more than $1 on Thursday following reports that China is weighing easing its COVID-19 restrictions for visitors, signaling a likely spike in demand from the world’s largest oil importer.

Futures for international benchmark Brent crude increased by 1.4% early Thursday afternoon, climbing as high as $93.71 per barrel.

Meanwhile, futures for the U.S.-based West Texas Intermediate climbed by $1.76, reaching $87.31 per barrel.

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Bloomberg reported Thursday that China is weighing easing its mandatory 10-day quarantine period for inbound visitors down to just seven days, including two days at a hotel and five days at home.

An economic rebound in China would almost certainly increase global oil demand, and therefore, prices — squeezing an already-tight global market even further after OPEC+ agreed to slash oil production by 2 million barrels per day.

These developments also appeared to cancel out any drop in prices following President Joe Biden’s announcement Wednesday that his administration would sell off the remaining 15 million barrels of oil from the Strategic Petroleum Reserve in December.

The sales are part of the 180-million-barrel release he ordered in March and come as Biden and Democrats in Congress seek to lower gas prices ahead of the midterm elections.

But the SPR drawdowns will also leave the reserve below 400 million barrels, its lowest amount since 1985.

Another looming factor threatening the global oil supply will come in December, when both a G-7 Russian oil price cap and a European Union embargo on imports of Russian seaborne crude are slated to take effect.

If Russia retaliates by cutting production, markets could be squeezed further — a problem that Biden cannot fix by SPR drawdowns.

How Russia will react will be a major determining factor, Lutz Kilian, a senior economic policy adviser at the Federal Reserve Bank of Dallas, said in an interview.

“There’s just not enough oil in the SPR to deal with a really big oil supply disruption,” he said.