Oil erased an earlier loss as investors weighed China’s bumpy return from virus curbs.
West Texas Intermediate futures rose 0.3% to trade near $122 a barrel, heading for a seventh weekly gain. China is cautiously lifting most virus restrictions, even as fresh lockdowns are planned in parts of Shanghai.
Any rapid demand recovery in the country will put further strain on a market that has tightened on rebounding global consumption and disrupted Russian flows.
Oil has maintained its upward momentum this year through bouts of volatile trading following Russia’s invasion of Ukraine in late February. Goldman Sachs Group Inc. this week boosted its price forecasts into 2023, while OPEC warned that most members are “maxed out” on crude production. The European Union is also working to ban Russian crude imports, stoking supply fears further.
“Oil prices are about to post another weekly increase because the gains they chalked up in the first half of the week have not by any means been entirely eroded,” said Carsten Fritsch, an analyst at Commerzbank AG. Yet optimistic demand forecasts “could be subject to a reality check” amid China’s strict Covid Zero policy, he said.
Shanghai will lock down seven districts this weekend to mass-test millions as Covid-19 cases continue to emerge in the community. China’s top oil producer China National Petroleum Corp. this week forecast rising demand in the third quarter, but warned of further possible disruptions from fresh outbreaks.
In the US, gasoline stockpiles are at their lowest seasonal level since 2014 as the nation enters the summer driving season, typically a peak period for consumption. Yet there are indications that pump prices near $5 a gallon are starting to cause some demand destruction.