Oil Slips as Stronger Dollar Offsets Optimism Over China Demand

(Bloomberg) -- Oil dipped after a two-day rally as a stronger dollar offset optimism around the outlook for improved Chinese demand.

West Texas Intermediate futures fell toward $88 a barrel as the dollar rose for the first time in three sessions, making commodities priced in the currency more expensive. That overshadowed expectations for a rebound in Chinese demand after the nation issued a rescue package for its struggling property market and has eased some of its strict Covid Zero restrictions.

An increase in Chinese crude consumption could lead to a further tightening of the market, which is facing European Union sanctions on Russian oil flows next month after the OPEC+ alliance initiated a round of supply cuts. Futures have rebounded this quarter after a sustained decline on slowdown concerns.

The fine-tuning of China’s Covid Zero policy sends a “powerful signal” to the market, said Stephen Innes, managing partner at SPI Asset Management. Still, traders are likely trying to find an equilibrium between current virus lockdowns and the soft pivot on strategy, he added.

China’s refinement of its Covid rules means cities have reduced mass testing and released people from quarantine camps, according to the new guidelines announced last week, with further changes to come in small steps, officials said Saturday. Still, virus cases continue to rise.

Treasury Secretary Janet Yellen said on Saturday that it’s “very likely” EU sanctions will force Russia to offer some of its crude at a price set by the US and its allies, if Moscow wishes to prevent a shut-in of some supplies. Europe will impose the ban on seaborne oil imports on Dec. 5.

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