Oil advances on China’s growth pledge and US move to refill SPR

OIL rose at the week’s open following a pledge from China to revive consumption as Covid Zero is abandoned and a plan from the Biden administration to begin refilling the nation’s strategic crude reserves.

West Texas Intermediate rose toward $75 a barrel after losing almost 4% in the final two sessions of last week. President Xi Jinping said restoring and expanding consumption should “take the precedence” as leaders concluded a meeting to set priorities for 2023. That pledge may help buttress energy demand even as Covid cases surge and the reopening process turns bumpy.

In the US, authorities are moving to replenish the Strategic Petroleum Reserve, starting with a 3-million barrel, fixed-price purchase, the Department of Energy said on Friday. The announcement caps a year that saw President Joe Biden order an unprecedented release from the SPR to help curb soaring domestic energy costs, which spiked after Russia’s invasion of Ukraine.

Oil is still headed for a second monthly loss as concerns about recessions in the US and Europe mounted, with central bankers continuing to tighten policy. In addition, Russian flows have so far proved to be resilient as a price cap imposed by the Group of Seven and European Union hasn’t led to major disruptions. Among major buyers, India said it doesn’t expect problems.

China’s drive to “expand consumption as the key economic priority for 2023” is helping to “paint a better demand outlook for oil,” said Charu Chanana, market strategist for Saxo Capital Markets Pte in Singapore, who also cited the SPR refill news as contributing to crude’s gains.

Time spreads continue to hold in contango, signaling ample near-term supply. Brent’s prompt spread—the gap between the two nearest contracts—was 43 cents a barrel in contango. The figure was 35 cents a barrel last week.