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Escalating Protests In China Add To Oil Market Volatility

  • Protests in Guangzhou over China’s stringent Covid policies escalated this week.
  • The rare protests are raising concerns over fuel demand in China.
  • Despite this risk, oil prices have begun to recover, in part because of expectations that Beijing will eventually give in and relax strict Covid restrictions.

Protests in a Chinese city escalated this week, with protesters clashing with the police in Guangzhou amid the growing frustration with lockdowns.

According to a Reuters report, footage shared on social media suggests protesters are being arrested and targeted with tear gas.

Protests erupted over the weekend and have escalated, according to reports and videos published on social media.

This has weighed on oil prices, causing a sharp drop in benchmarks ahead of this Sunday’s OPEC+ meeting.

“On top of growing concerns about weaker fuel demand in China due to a surge in COVID-19 cases, political uncertainty, caused by rare protests over the government’s stringent COVID restrictions in Shanghai, prompted selling,” a Nissan Securities analyst told Channel News Asia on Tuesday.

In response to the spreading protests, the authorities have signaled that Covid restrictions will be relaxed, but, Reuters notes, they are also reportedly seeking out people who have joined the protests in different parts of the country.

Goldman Sachs’ Jeffrey Currie this week acknowledged the negative effect of events in China on oil prices as they affect the demand outlook. Currie noted, however, that “I think the key point with China right now is the risk that you get a forced reopening. That means it’ll be self-imposed lockdowns where people don’t want to get on trains, don’t want to get to work and demand goes further south.”

Despite this risk, oil prices have begun to recover, in part because of expectations that Beijing will eventually give in and relax strict Covid restrictions. Following an announcement for a vaccination campaign among the elderly, analysts noted that it might be a sign of a coming restriction relaxation.

"The prospect of a return to normality, in an economy that is the world's largest oil importer, was enough to make oil prices jump in the first significant price rebound of the last two weeks," an ActivTrade analyst said in a note, as quoted by MarketWatch on Tuesday.

By Charles Kennedy for Oilprice.com

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