DTN Oil

WASHINGTON (DTN) -- New York Mercantile Exchange oil futures and Brent crude on the Intercontinental Exchange advanced more than 3% in early trade Friday morning, sending the international crude benchmark above $97 barrel (bbl) in reaction to media reports that Chinese officials are planning substantial changes to Beijing's zero-COVID policy next year in a move that could boost global oil demand at a time when fuel supplies remain tight.

Friday's move higher in the oil complex is underpinned by speculation China could abandon its stringent COVID-19 controls as early as the first quarter 2023, starting with scrapping the quarantine system for international travelers and penalty system for airlines boarding infected individuals. China is the world's largest oil importer and changing those restrictions could give a significant boost to global fuel demand.

Some analysts estimate China's fuel consumption could recover by 400,000 barrels per day (bpd) in first three months of 2023 due to easing air travel controls. Regardless of the exact path to reopening, Beijing will likely lift COVID restrictions gradually, contingent on the speed of the viral spread and some sort of mass-vaccination program.

So far, China's zero-COVID strategy relied heavily on lockdowns and mass testing to stamp out infections that have hammered the country's economy over the past two years. China's economic growth rebounded 3.9% in the third quarter, buoyed by manufacturing and solid exports, but continued growth is dependent upon abandoning COVID-19 restrictions.

Commodity and equity markets reacted bullishly to the news surrounding China's potential reopening. Hong Kong stocks rose as much as 7% on Friday, with tech and consumer cyclical stocks driving the surge, with the Shanghai Composite Index gained 2.43% to 3,070.80 and the Shenzhen Component rallied 3.2% to 11,187.43.

The U.S. Dollar Index fell sharply against a basket of foreign currencies to near 112.260, with the offshore yuan strengthening more than 1% in Asian trading to a one-week high of 7.2441 per U.S. dollar.

USD weakness comes ahead of the release of the U.S. non-farm employment report for October scheduled for 8:30 a.m. EDT, with consensus calling for 210,000 new jobs to have been added last month compared with job growth of 263,000 in September. The unemployment rate is seen to have ticked up 0.1% to 3.6% in October, although still holding near a 50-year low. Average hourly earnings are expected to remain unchanged from the previous month with a 0.3% rise and 4.7% on a year-over-year growth rate.

The U.S. labor market has continued to grow despite rising interest rates and signs of a softer economy. High frequency unemployment claims, one of the best barometers of economy's performance, barely budged over the course of October. The Labor Department's Job Openings and Labor Turnover survey on Tuesday showed new vacancies unexpectedly jumped by nearly 500,000 in September to 10.717 million after falling in August. There were roughly 1.9 open positions for every person looking for work in September, up from 1.7 in August.

Good news for the economy could be bad news for the markets. The Federal Open Market Committee lifted the federal funds rate by 0.75% for the fourth consecutive meeting on Wednesday to cool off surging inflation.

While little changed in the Fed's trajectory on rates, Fed Chairman Jerome Powell punctuated the central bank's hawkishness, stating, "There are still some significant rate increases coming before we get to the level that is sufficiently restrictive."

The Fed chief added, "Incoming data suggests no pattern of inflation coming down," implying a protracted period of higher interest rates.

Near 7:30 a.m. EDT, NYMEX December West Texas Intermediate spiked $3.13 to $91.34 bbl, with January Brent, the international crude benchmark, surging to $97.77 bbl, up by more than $3 bbl. NYMEX December RBOB futures advanced $0.0874 to $2.7813 gallon, and December ULSD futures rallied $0.0355 to $3.8999 gallon.

Liubov Georges can be reached at Liubov.Georges@dtn.com