Oil surges as weaker dollar offsets China Covid fears

London — Oil prices rose on Tuesday, recouping losses from the previous session, as a weaker dollar offset widening Covid-19 curbs in China that have stoked fears of slowing fuel demand in the world’s second-largest oil consumer.

Brent crude for January delivery rose $1.38, or 1.49%, to $94.19 a barrel at 9.51am GMT. The December contract expired on Monday at $94.83 a barrel, down 1%.

West Texas Intermediate rose $1.15, or 1.33%, to $87.68 a barrel, after falling 1.6% in the previous session.

The gains came as the dollar sank from a one-week high against a basket of major peers on Tuesday, with traders weighing the odds of a less aggressive Federal Reserve at Wednesday’s monetary policy meeting. A weaker greenback makes dollar-denominated oil cheaper for buyers holding other currencies, boosting demand for the commodity.

The Brent and WTI benchmarks both ended October higher, posting their first monthly gains since May, after the Opec and allies including Russia — collectively known as Opec+, said they would cut output by 2-million barrels a day.

“Opec+’s output cuts and the US’s record oil export data also support oil prices fundamentally,” CMC Markets analyst Tina Teng said.

Dwindling supply, the possible halt of the US Strategic Petroleum Reserve (SPR) release, and reinvigorated demand could also send oil above $100/bbl again, said Tamas Varga of oil broker PVM.

Opec raised its forecasts for global demand in the medium and longer term on Monday, saying that $12.1-trillion of investment is needed to meet this demand despite the transition to renewable energy sources.

These bullish factors have offset demand concerns raised by Covid-19 curbs in China, the world’s top importer of crude, which lowered factory activity there in October and cut into its imports from Japan and South Korea.

In a further cap to price gains, US output climbed to nearly 12-million bbl/day in August, the highest since the onset of the Covid-19 pandemic.

US crude oil stocks are likely to rise in the week to October 28, based on a preliminary Reuters survey. The American Petroleum Institute is due to publish its data at 20.30pm GMT on Tuesday, and a report from the Energy Information Administration is scheduled for 2.30pm GMT on Wednesday.

Reuters