- Oil extends losses amid less liquidity in the markets
- Feb ’23 WTI lost nearly 70c this morning to trade around $78/Bbl
- Concerns about how smoothly China will reopen and whether the country can sustain the eased restrictions persist
- Yesterday, nations including the U.S. and Italy said they would require airline passengers from China to show negative virus tests as new cases soar
- Covid spike in China, the largest importer of crude, dampens near-term oil demand, but AEGIS notes that demand could see an uptick after the initial Covid waves
- However, the USD Index (DXY – a proxy for U.S. Dollar strength against a basket of six international currencies) continued to weaken relative to its recent 20-year highs
- A weaker dollar (DXY Index) can cause foreign buyers of dollar-denominated commodities to pay less for the same amount of goods
- The U.S. joined various countries in requiring airline passengers from China to show negative virus tests, and they are considering additional measures (BBG)
- The move comes with a surge in Covid cases in China as the nation abandons its Covid-zero policy
- This week, similar regulations were also imposed in Italy, Japan, and Taiwan, while other countries are considering their options
- China is set to scrap its quarantine requirement for inbound travelers from Jan 8 despite the surge in virus cases, and it is estimated that over 37 million people were infected in a single day last week
- Although the EIA projects a 0.600 MMBbl/d or 4% year-over-year growth in China’s oil demand to 15.76 MMBbl/d in 2023, a sharp increase in demand early next year could be unlikely