Oil Rises as Chinese Economic Assurances Ease Demand Concerns

Oil climbed as Chinese central bank assurances of economic support eased fears that a new round of virus lockdowns will crimp crude demand. Diesel markets also spiked amid a global clamor for supplies.

West Texas Intermediate settled above $101 a barrel after shedding more than 5% in the previous two sessions. China’s central bank pledged to ensure ample liquidity and assist sectors battered by the pandemic even as virus testing expanded in Beijing. The resurgence of Covid-19 has hammered fuel consumption in the world’s second-largest economy.

“Crude prices rebounded as China’s PBOC stepped up efforts to calm markets,” said Ed Moya, senior market analyst at Oanda. “Energy traders are taking a break from the demand destruction trade as everyone awaits China’s mass COVID testing results.”

Traders are focused on Chinese demand and Russian supplies as the war in Ukraine stretches into its third month. Crude prices have oscillated around $100 a barrel, and key market gauges in Europe have weakened with softer Chinese consumption helping ease shortage concerns. Inflationary pressures are growing around the world, forcing central banks to contemplate monetary-tightening measures that could choke off the economic rebound.

Brent crude’s prompt spread -- the gap between its two nearest contracts -- has collapsed, earlier touching the weakest level since late last year, excluding expiration days, and coming close to trading in contango. However, some fuel spreads are soaring as the uneven pace in recovery for refined products and global supply disruptions wreak havoc in middle distillate markets.

Benchmark U.S. diesel futures settled at a record for data going back to 1986. The price gap between diesel contracts for immediate delivery soared to the widest-ever premium over later-dated contracts as inventories in the U.S. dwindle.