After shedding 8% last week, crude oil prices are trading up over 1.7% midday Monday, driven by China’s reopening and a weaker U.S. dollar.
West Texas Intermediate (WTI) was trading up 1.84% as of 1:31 p.m. EST on Monday, breaking the $75/barrel barrier, while Brent was trading up 1.55%, pushing towards the $80 mark.
China’s reopening news was the key driver pushing against recession fears that commanded all the attention last week. Less hawkish sentiments coming from the Fed, combined with a softening dollar, also gave oil prices a push.
The U.S. Dollar Index dropped 0.82% on Monday.
Gains are not as high as one might anticipate over a China reopening, and do not appear to be driving towards a fast reversal of the 8% they shed previously, as traders remain cautious about what happens next with Chinese recovery.
COVID-19 cases are still expected to surge further, hampering demand.
China’s reopening has led to a surge in cases, and traders have trimmed optimism somewhat based on the latest Chinese manufacturing data, which showed activity dropping for a third consecutive month in December. Other indications of a tough recovery include emerging labor shortages and supply chain disruptions.
Last week’s drop in oil prices represented one of the biggest declines since 2016.
The recovery in oil prices on Monday also comes as the U.S. Department of Energy (DoE) is attempting to entice producers to sell oil at a favorable rate–ideally $70/barrel–to refill the Strategic Petroleum Reserve (SPR). On Friday, reports emerged that the DoE had rejected the first bids as unfavorable to taxpayers. If oil prices continue to climb, it will be increasingly difficult to refill the SPR, which has reached its lowest level since 1984.