Oil Rises as China Moves To Unlock Shanghai

Oil rises to the highest since March in thin holiday trade as China indicates readiness to lift its lockdown on Shanghai with the United States (U.S) summer-driving season underway, boosting demand.

West Texas Intermediate crude for July delivery was last seen up $0.76 to $115.83 per barrel, while July Brent crude, the global benchmark, was up $0.73 to US$120.16.

The rise comes as Shanghai and Beijing are both expected to ease Covid-19 quarantine measures beginning on June 1 as new infections fall. China’s zero-Covid policies have reduced demand in the world’s No.1 importer by more than one million barrels per day.

“Oil prices have gained by around six per cent since the middle of last week. One reason being cited for this is the imminent lifting of coronavirus restrictions in Shanghai, which is sparking hopes that oil demand will pick up again in China.

That said, the risk of renewed lockdowns will remain for as long as China sticks with its strict zero-Covid policy and is willing to lock down entire megacities in response to even small outbreaks. It is too early therefore to sound the all-clear completely,” Commerzbank analyst Carsten Fritsch noted.

The Memorial Day weekend also marks the start of the US summer-driving season amid low gasoline stocks and record prices for the fuel. There is little indication yet that high prices are deterring consumers from hitting the road, but there is some anecdotal evidence drivers are seeking lower prices.

“Channel checks with gas station aggregator platforms suggest that while volumes sold remain some 4-6 per cent below pre-COVID levels, that record pricing is not significantly reducing demand.

Instead, anecdotal conversations suggest that discount gas stations like Costco are seeing as much as a 25 per cent increase in fuel sales, while conventional branded retail outlets are seeing a near 25 per cent decrease.

This suggests that motorists are looking for deals and willing to wait in lines for cheaper fuel, rather than curbing demand,” Michael Tran, commodity strategist at RBC Capital Markets, said in a Friday note.