WTI Oil: China Wins Over Economic Fears

China’s reopening economy overshadows fears of a near-term recession

Oil prices have been trying to regain their highs for a few days after a complicated start to the week marked by large protests against health restrictions in China. Oil prices fell to an 11-month low during Monday’s session before rebounding as the Chinese economy reopened. In fact, new rumors, then official announcements, suggested that Beijing would be on the verge of easing health restrictions.

Market operators seem to anticipate some recovery in the Chinese economy (reflation) since Monday, benefiting oil prices but also risky assets and the yuan.

Nevertheless, the health restrictions are still very strict and Beijing will probably take its time before completely lifting the restrictions given the low level of vaccination of the elderly. About 90% of China’s population is fully vaccinated, but among people aged 80 and over, only two-thirds are fully vaccinated and only about 40% have received a booster dose, according to the National Health Commission.

In the longer term, the increasing risk of recession in the world economy will continue to threaten the prices of oil and other cyclical assets. Recent data has continued to deteriorate, particularly the Chicago PMI, which has fallen to a level consistent with a US recession and an inverted yield curve.

WTI Oil Price Daily Chart – Key Levels

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