By Ambar Warrick
Investing.com-- Oil prices rose on Monday, recovering from steep losses in the prior session as markets bet on a demand recovery fueled by China’s economic reopening, while the Biden administration’s pledge to begin refilling its strategic reserve also brightened the outlook for prices.
Crude markets were buoyant as several Chinese officials, including President Xi Jinping, vowed to shore up economic growth after a year of COVID-19 lockdowns battered the world’s second-largest economy.
The country has now begun relaxing several anti-COVID measures, with recent road and air transport metrics showing that fuel demand is already picking up.
But China is also grappling with a large spike in COVID-19 infections, which analysts warn could spur volatility in markets amid conflicting signals over an economic reopening.
London-traded Brent oil futures rose 1% to $80.04 a barrel, while West Texas Intermediate futures jumped 1.3% to $75.44 a barrel by 21:37 ET (02:37 GMT). Both contracts were still trading near one-year lows, having logged steep declines in recent sessions on fears of a potential recession in 2023.
But a pledge from the U.S. government that it will begin refilling its Strategic Petroleum Reserve (SPR) from February also served as a buy signal for markets. The Biden administration said on Friday that it will initially buy 3 million barrels of oil, while also engaging in fixed-price purchases of crude.
The U.S. government drew heavily from the SPR in a bid to cap rising fuel prices this year, bringing it to its lowest level in nearly 40 years. The Biden administration had also signaled that it would begin replenishing the reserve when crude prices were trading at lower levels.
An earthquake in West Texas, the country’s biggest oil-producing region, also ramped up fears of tightening U.S. crude supply, which benefited prices. Forecasts for a colder-than-expected winter also indicate that crude prices could be supported by more demand for heating oil in the near-term.
Still, crude prices were trading nearly flat for the year, as markets feared that rising interest rates and high inflation will result in a potential recession in 2023. A slew of hawkish signals from major central banks rattled crude markets last week, with the Federal Reserve and the European Central Bank signaling that interest rates will keep rising for the near-term.
Weak economic data from China also showed that the country has a long road to recovery, which could indicate a staggered recovery in demand.