As trading opened on Friday, October 21st, crude oil prices seemed to remain static as hopes for China’s economic reopening continued to be dashed by Beijing’s incredibly strict zero-COVID policy. 

Brent crude futures traded at $92.26 as trading began for the day, the value per barrel down by twelve cents. West Texas Intermediate (WTI) futures, on the other hand, were trading at $84.40 per barrel, a rate down by eleven cents.

Brent futures were expected to gain 0.6% weekly, while those of WTI was set to drop by 1.5% due to a rollover in its front-month contracts.

Beijing Mum Over Lifting of Restrictions

Indeed, the world’s biggest importer of crude oil continues to adhere to its hardline stance against COVID-19, resulting in lockdowns that have severely hampered economic activity throughout the country and have also significantly decreased the demand for fuel.

While there have been reports that the Chinese government has mulled the reduction of the quarantine periods for travelers from ten days to seven, it has yet to issue an official announcement regarding the matter.

As a result, financial and industrial analysts fear that the extreme zero-tolerance policy currently in place will remain enforced well into 2023.

The Fed Gets Hawkish

But China’s reluctance to reopen isn’t the only issue affecting the price of crude oil at the moment. The way the US Federal Reserve has remained hawkish about raising its short-term interest rates to stem the tide of inflation also had its part to play.

According to SPI Asset Management managing director Stephen Innes, the Fed’s continued aggression against inflation cooled any residual optimism regarding any hope of China loosening its quarantine policies. Innes remarked that while it is expected that China’s reopening could drive a boost in commodities, this remains unlikely for the near future.

Reduced Output = Reduced Supply

In recent months, the price of oil has stayed high, mostly bolstered by the EU’s upcoming ban on Russian crude and processed oil and the recent output cut announced by the Organization of the Petroleum-Exporting Countries and its allies (OPEC+.) The United States has accused Saudi Arabia of pressuring its fellow OPEC members into implementing the production cut.

According to a note issued by ANZ Research on October 21, the move to reduce OPEC’s total production by two million barrels earlier this month may be the turning point for the global oil market. Coupled with the impending price cap and overall disruption of crude supplies from Russia, it may tighten the market even further. However, it was also noted that the oil market remains fairly strong despite ongoing conditions.