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Energy & precious metals - weekly review and outlook

China’s Xi Jinping, is to decide how the year-end narrative for oil might be, based on Whatever update to OPEC+ production policy is announced by Saudi Energy Minister Abdulaziz bin Salman today.

From one tightening after another of his Zero-COVID policy since October, China’s president has been forced to loosen some of the hatches to the lockdowns in major Chinese cities amid widespread and rare public protests.

The oil market’s reaction to the retreat shown by the Xi administration was swift. Crude prices soared over the past week with the same urgency with which they had plunged earlier in November as traders quickly worked out the math of mobility and energy demand returning to communities that had been suppressed for months.

Yet, the rebound proved modest and fleeting. After a four-day run-up, the market turned down, closing Friday lower. New York-traded West Texas Intermediate, or WTI, still finished with a 5% gain on the week, and London’s Brent with a 2% rise. But oil bulls were disappointed as that contrasted with the 19% dive in the U.S. crude benchmark and the 16% tumble in the U.K. crude gauge.

Crude traders had initially feared that EU countries might go for a much smaller limit of $50 a barrel or below that could sufficiently anger President Vladimir Putin and prompt him to carry out his threat of slashing Russian oil production or exports to punish Europe instead over the move. But by moving up the cap, Europe may avert any Russian retaliation - keeping Moscow’s oil supplies to the region flowing and crude prices lower.

The rebound in the dollar from 3-½ month lows was another bearish factor for oil and most other commodities priced in the currency.

The greenback rose after data showed the United States added 263,000 jobs in November - the smallest since February 2021 but still more than 30% above market forecasts. The strong jobs number could make the Federal Reserve rethink its plan to impose smaller rate hikes hereon to curb inflation when the central bank holds its monthly policy meeting on Dec. 14.

But more than all these were nagging concerns about how China’s oil demand would fare if Beijing reverts to aggressive COVID action later in December and over the coming year.

The consensus among health experts and veteran China observers is that Beijing will likely loosen some of its strictest health policies and end up increasing COVID caseloads in the process. New infections from the virus hit a record high of 31,444 on Nov. 24. Some fear more dramatic spikes in a population that has a massive immunity gap for COVID compared with other nations.

And the more the COVID duress on China, the more its contagion impact on oil, say analysts who predict the country could experience a demand slide of more than 1 million barrels per day versus the norm.

Chinese oil imports stood at a five-month high of 10.2 million barrels per day in October -- slightly above the pre-virus average -- after the government issued an additional fuel-export quota in an attempt to help revive the country’s economy.

Yes, it appears that Chinese President Xi’s decisions on COVID control and public freedom will have a greater say on the oil narrative for the year-end and beyond than the tweaks on OPEC+ production and exports by Saudi energy minister Abdulaziz.


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