Crude oil prices increased on Monday due to optimism about China's economic reopening leading to increased demand in the coming year, as well as the announcement that the Biden administration plans to refill the U.S. strategic reserve. As of 09:10 ET, U.S. crude futures were trading at $75.98 per barrel, a 2% increase, and the Brent contract rose 1.9% to $80.51 per barrel.
China, the world's largest importer of crude oil and the second largest economy, has seen a recent surge in COVID cases and relaxed some of its mobility restrictions due to public unrest. However, metrics for road and air transport indicate that fuel demand is beginning to recover, and Chinese authorities have hinted at a more pro-growth stance in the new year. In fact, state media reported that China's economic output is expected to exceed 120 trillion yuan in 2021, equating to a 4.9% expansion in gross domestic product from the previous year. This is higher than the 3% growth seen in the first three quarters of 2021.
Additionally, the U.S. government's decision to refill its strategic reserves, initially purchasing 3 million barrels of oil, also contributed to the positive outlook for crude oil. The strategic reserves had been depleted to their lowest level in nearly 40 years in an effort to reduce fuel prices earlier this year. However, despite these factors, crude oil prices are currently trading near their lows for the year after giving back all of their gains from the beginning of the year due to concerns about the potential for a global recession in 2023 due to aggressive monetary tightening to combat high inflation.
Meanwhile, European Union Energy Ministers are meeting in Brussels on Monday to discuss a proposal to cap natural gas prices, under pressure to reach a deal after the issue was made a priority at the bloc's summit last week. According to Bloomberg, ministers will consider a new proposal setting the price cap at 180 euros per megawatt-hour, with the cap taking effect after only three days of gas futures trading above that price. The cap would go into effect on February 1st.