Oil Price Fundamental Daily Forecast – Crude Surges Amid Potential Relaxed China COVID Rules

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are trading sharply higher ahead of key U.S. jobs data as investors reacted to reports that China may relax its COVID rules.

The news, which could help dampen worries about demand in the country, dulled the U.S. Dollar’s safe-haven appeal, making dollar-denominated crude oil more attractive to foreign traders.

At 11:37 GMT, December WTI crude oil futures are trading $91.41, up $3.24 or +3.67% and January Brent crude oil is at $97.76, up $3.09 or +3.26%. On Thursday, the United States Oil Fund ETF (USO) settled at $73.34, down $0.74 or -1.00%.

Relaxed China COVID Restrictions Could Be Game-Changer

For weeks, China’s on-going COVID curbs have been keeping a lid on crude oil prices so the lifting of these restrictions could trigger a move to higher prices especially at a time when OPEC+ is launching its latest output reductions and the European Union (EU) is preparing to place an embargo on Russian crude oil. Furthermore, U.S. stockpiles are falling, contributing to the overall tightening in global demand.

US Non-Farm Payrolls Report on Tap

Crude oil traders will be turning their attention to key U.S. jobs data from October with economists polled by Reuters expecting Non-Farm payrolls to show an increase of 197,000 jobs in October. The Unemployment Rate is expected to rise slightly to 3.6% and Average Hourly Earnings are expected to have risen 0.3%, matching the September increase.

An upside surprise in the headline number or a downside surprise in the unemployment rate would reinforce the Fed’s higher terminal rate posture and keep the U.S. Dollar bid. This could put a cap on crude oil prices but it’s not likely to offset the growing headwinds supporting prices.

Although a headline number of about 200,000 would mark the slowest pace of growth so far in 2022, most of the internal components of the report suggest the labor market remains strong.

This has been one of the factors that has enabled the Fed to relentlessly raise interest rates to tame inflation.

China May Be Planning to Relax COVID Restrictions

China is working on a plan to end a system that banned individual flights for bringing in passengers infected with the COVID-19 virus, Bloomberg News reported on Friday, citing people familiar with the matter.

On Friday, China reported its highest daily count of new local COVID-19 cases in six months and a foreign ministry spokesman said he was not aware of the report, but crude prices still surged.

This story still hasn’t been confirmed nor denied. Nonetheless, it’s out there and traders are reacting to it.

Short-Term Outlook

The OPEC+ production cuts combined with the upcoming EU embargo on Russian oil and the tightening U.S. crude oil supply are all supportive factors. The news out of China, whether it’s valid or not, is bringing enough speculative buyers into the market to spike prices higher.

Stronger-than-expected jobs data could put a temporary lid on prices, but I don’t think it will completely derail today’s rally.