WTI surges beyond $81.50 on the back of a weakening US Dollar and a loosening of China's Covid restrictions

West Texas Intermediate (WTI) futures on the New York Mercantile Exchange (NYMEX) have rebounded spectacularly to near $81.63 during the Tokyo session, as loosening tight restrictions in China have given oil bulls an adrenaline boost. After retracing close to the $80.00 round-number support level, the oil price has rebounded substantially.

The receptive buying action in oil prices is supported by China's decision to loosen restrictions on Covid-19 following a vigorous protest for the liberalization of the economy. As the reopening of the Chinese economy suggests that there are no constraints on the flow of people, goods, and machines, this has reaffirmed greater oil demand forecasts. The expansion of economic activity in China will bolster oil demand in the world's largest oil-consuming nation.

In addition, the weakening of the US Dollar Index (DXY) is boosting oil prices. The USD Index has retested its five-month low below 104.20 as market investors have increased their risk appetite amid mounting predictions that the Federal Reserve will slow its pace of interest rate hikes (Fed). Aside from this, a robust U.S. job market signals robust oil consumption.

On the supply side, OPEC+ did not announce any additional production cutbacks during its meeting on December 4, other than the continuation of the earlier agreement to reduce oil production by two million barrels per day through November 2023. This resulted in a corrective fall in oil prices, but a stronger recovery supported by an easing of China's zero-Covid policy has restarted oil's upward trajectory.