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Oil On Track For Another Weekly Loss Despite Price Spike

  • Oil prices were up two percent on Friday morning on news that China had eased some of its Covid restrictions.
  • Despite the early price spike, oil is set for another weekly loss after starting the week with three consecutive daily declines.
  • Fears that China will implement further Covid lockdowns combined with bullish inventory data from the U.S. continue to weigh on oil prices.
oil prices

Oil prices were on track to record another week of losses despite occasional spikes due to supply concerns and hopes that China will soon begin relaxing its tough Covid policy stance.

Indeed, China has signaled it will loosen some restrictions employed to deal with the flare-ups of infections that keep occurring despite the strict lockdowns and quarantines. Yet this only managed to push prices up temporarily, with fears that the pandemic will not disappear in China anytime soon acting as a strong headwind.

Oil posted daily declines for most of the week on these fears, only settling with a gain on Thursday after the U.S. released consumer price index data that wasn’t as bad as expected.

The U.S. Consumer Price Index for All Urban Consumers (CPI-U) rose by 0.4 percent in October from September, the CPI data showed. This compares with the expectation of a 0.6 percent increase in consumer prices month over month.

Over the last 12 months, the CPI increased by 7.7 percent before seasonal adjustment, which again was lower than the 7.9 percent expected annual inflation for October.  

A day earlier, prices also ended trade with a drop, this time because of a build in U.S. crude oil inventories for the week to November 4, even though the EIA estimated declines in fuel inventories. However, these declines were lower than expected, which also helped pressure oil prices.

At the time of writing, both Brent crude and West Texas Intermediate were up but unlikely to reverse three days of declines, especially with China again recording an increase in Covid cases.

According to Reuters, the weekly loss for oil prices could reach 4 percent on higher U.S. crude inventories and fears that China will start locking down cities again despite the signs of restriction relaxation.

"Since traders are hyper-sensitive to lockdowns in the world's largest oil importer, this could temporarily hold the oil market's top-side ambition in check," Stephen Innes, managing partner at SPI Asset Management, told Reuters. "But unquestionably, we are in a much better place than yesterday."

By Irina Slav for Oilprice.com

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