Oil steady as China revival hopes offset Russia uncertainty

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Oil futures were little changed in Asia on Wednesday as hopes of improved Chinese demand offset uncertainty about how a Western cap on Russian oil prices would play out, keeping markets on edge after a sharp fall in the previous session.

Brent crude futures edged up 3 cents, or 0.04 per cent, to $79.38 a barrel by 0717 GMT, after they fell below $80 for the second time in 2022 during the previous trading session.

US crude futures mostly traded sideways and were down 9 cents or 0.12 per cent to $74.16 a barrel.

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Brent’s slump on Tuesday was the largest daily decline since late September, which has traded in a $62 range this year.

Expectations of rising China demand continued to be a positive driver, as the country posted fewer new COVID-19 infections for the second consecutive day and announced sweeping changes in its tough anti-virus policy.

China’s national health authority said on Wednesday that asymptomatic COVID-19 cases and those with mild symptoms can quarantine at home, in the strongest sign so far that China is preparing its people to live with the disease.

“China has (been) rapidly eased COVID-19 restrictions, which may boost demand,” markets analyst Leon Li at CMC Markets said in a note.

The reopening could see a 1 per cent boost to global oil demand, ANZ said in a client note.

Data earlier on Wednesday showed China’s crude oil imports in November rose 12 per cent from a year earlier to their highest in 10 months, as companies replenished stocks with cheaper oil and as new plants started up.

A potential drawdown in US crude stockpiles of around 6.4 million barrels, according to API figures, also gave some sentiment support on the supply front.

However, uncertainty on how the price cap on Russian oil would impact supply contributed to volatility. Russia is considering three options, including banning oil sales to some countries and setting maximum discounts at which it would sell its crude, to counter the price cap imposed by Western powers, the Vedomosti daily reported on Wednesday.

“There’s still tons of uncertainty in the markets today,” said Claudio Galimberti, senior vice president at Rystad Energy, adding crude production in Russia may not drop as much as expected earlier.

Some weakness was attributed to a stronger greenback after it firmed from the earlier session and cautious activity in Asian stock markets.

Wall Street benchmarks also tumbled on Tuesday on uncertainty around the direction of Federal Reserve rate hikes and further talk of a looming recession.

Those fears were sparked by strong economic data or hawkish signals from other policymakers.

Oil prices have dropped by more than 1 per cent for three straight sessions, giving up most of their gains for the year.

Some optimism remained that buyers could come back if the market bottoms out amid a contango price structure, where forward prices are higher than prompt prices.

“Energy traders are not confidently buying dips, but they will if the current selloff sends (US crude) prices close to the levels the Biden administration might refill the SPR, which is in the $70 region,” a senior market analyst at OANDA Edward Moya said in a client note, referring to the US Strategic Petroleum Reserve.

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