DTN Oil

WASHINGTON (DTN) -- New York Mercantile Exchange oil futures and Brent crude traded on the Intercontinental Exchange settled Friday's session higher. The gains came amid growing optimism for a stronger recovery in demand next year after Chinese authorities eased some of the harsh zero-COVID policies, allowing for easier air travel and business operations in the world's second-largest economy. Meanwhile, a softer inflation report in the United States reignited hopes that the Federal Reserve could still engineer a soft landing.

Commodities from crude oil to precious metals jumped on Friday after Chinese authorities released 20 new guidelines for COVID-19 controls that some view as a first step toward erasing strict zero-COVID policies. These include: a shorter isolation time for new arrivals, an end to circuit breaker bans for incoming flights, minimizing contact-tracing regime, and removing mass-testing requirements for most areas. Unsurprisingly, plane ticket bookings for flights into China doubled in just one hour after the announcement.

Oil traders bet that China's reopening will be well underway next year with these first modest steps just the beginning of erasing COVID-19 controls that curbed jet fuel demand in recent months somewhere between 400,000 and 1 million barrels per day (bpd). Others are being more cautious, suggesting the changes are incremental, and another major COVID surge could still trigger a lockdown.

However, the fact that changes come at a time when China's COVID cases surged to a six-month high -- with major outbreaks in Guangzhou and Beijing -- reflects an unmistakable change in President Xi Jinping's zero-tolerance stance.

Domestically, the October inflation report showed inflation pressures across the U.S. economy are easing, relieving some pressure from the Federal Reserve to keep hiking interest rates aggressively next year. The Labor Department reported Thursday that core prices, which exclude volatile food and energy items, rose 0.3% from September, the smallest monthly gain in one year, and by 6.3% on a year-over-year basis, down from 6.6%. The housing component of October's CPI report accounted for almost half of the last month's increase, with changes in housing prices typically taking around 18 months to turn around, meaning October's CPI print is already a lagging inflation indicator. There has been some evidence that growth in rental prices has already started to slow in most U.S. states, and in some places even turned negative. The Federal Open Market Committee approved last week its fourth consecutive rate increase of 0.75%, raising the benchmark federal-funds rate to a range between 3.75% and 4%. Thursday's report offered a glimmer of hope to those investors who bet interest rates won't have to rise to levels significantly above 5%. Some Fed officials already indicated they would prefer to see a series of lower inflation readings before pausing rate increases.

At settlement, NYMEX West Texas Intermediate for December delivery surged $2.49 per barrel (bbl) to $88.96 bbl, and international crude benchmark ICE Brent jumped by $2.32 per bbl to $95.99 per bbl. NYMEX December RBOB futures added 4.33 cents to $2.6096 per gallon, and December ULSD futures fell 1.41 cents to $3.5553 per gallon.

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

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