China’s Zero-Covid Tweaks Are A False Flag For Oil Markets

The huge reaction in many of the world’s leading stock markets to the news that China has ‘relaxed’ its ‘zero-Covid’ economic policy was wrong from all perspectives. Broadly speaking, firstly, China has not relaxed its zero-Covid in any way, it has only made some minor adjustments. Second, these minor adjustments will worsen the net effect of its zero-Covid policy, as it will lead to an increase in the number of Covid-19 cases, due to China’s total lack of an effective vaccination for, or treatment of, the disease. Third, it is China’s continued economic slowdown and not its economic boom that should be welcomed by the developing market economies of the world. Such a slowdown would reduce China’s huge demand for oil and gas, and it is high energy prices that have caused a toxic mix of high inflation and high interest rates that are threatening recession in many of the world’s leading economies. China’s zero-Covid policy is based on the imposition of very strict lockdowns across cities that have been identified as a low number of Covid-19 cases. On November 11, the Chinese government announced 20 small changes than the zero-Covid policy that has been in place for about three years. One such change is that travelers from overseas will need one negative PCR test within 48 hours of boarding a flight to China instead of two. Another is that foreign travelers will be quarantined for eight days out of 10, and another is that people inside China who are considered ‘close contacts’ of Covid-19 carriers will no longer need to quarantine. The new guidelines also ban mass testing unless it is ‘clear how infections are spreading’ in an area. That said, on the same day these announcements were made, municipal officials in Beijing were asking many of the city’s residents to be tested daily, often for weeks.

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The fundamental problem with China’s latest approach to Covid-19 is like most half-measures: that is, they only serve to make the problem worse. In this example, any relaxation of China’s zero-Covid policy will lead to a significant increase in Covid-19 cases because the country still does not have an effective vaccine against the disease or a variant of it. This is despite ongoing proposals from all major vaccine producing countries to provide such supplies to her. Chinese President Xi Jinping has personally welcomed his country’s unilateral approach to the fight against Covid-19, repeatedly referring to nationalism and the Chinese Communist Party. “We must be committed to a zero-Covid dynamic based on scientific accuracy… Continuity is victory,” he said said at the April. “Zero-Covid is a people’s war to stop the spread of the virus,” he added. Moreover, this increase in cases will lead to more deaths, as China also does not have an effective post-infection antiviral, and it still refuses to buy such supplies from foreign suppliers, again despite constant offers from few western countries to do so. Anti-viral and post-infection treatments are available in China.

The clear support that President Xi received at the recent 20th Party Congress to be re-elected as General Secretary of the Chinese Communist Party for a third term almost certainly means that China’s approach to Covid -19 will not change significantly anytime soon. Eugenia Fabon Victorino, head of Asia Strategy for SEB, said: “China’s commitment to its dynamic COVID clean-up strategy remains the strongest for growth, and official statements before and during the Party Congress show this policy as the most appropriate of considered for the country.” OilPrice.com. “In 2020, China’s economy managed a rapid recovery from the first wave of infections as movement restrictions succeeded in blocking transmission in a limited number of regions, but the increasingly infectious strains of the virus led to an increase important in areas that report new cases of Covid daily,” she added. In fact, just over a month ago, even before the latest changes to China’s Covid-19 policy, 26 out of 31 regions have seen severe outbreaks. In addition, at the end of last week, China’s National Health Commission reported 23,276 new Covid-19 infections per day.

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In terms of specific negative implications for China’s economic growth, the main Purchasing Managers’ Index (PMI) for factory activity fell sharply in October to 49.2, down 0.9 from the previous month, indicating a clear contraction. is Accordingly, China’s crude oil imports fell 4.3 percent year-on-year in the first three quarters of the year, the first annual decline since 2014. As of the end of the first half of this year, then, the economic outlook for China was already looking worse than previously expected, with SEB’s Victorino having already lowered his China GDP growth estimate at the start of the year to just one percent. 3.5.

A significant drop in oil prices may not be what the oil producing companies want, but it is certainly a necessity of the global economy and especially the economies of developing countries. Since the end of the third quarter of last year, global investors across all asset classes, including the most prominent, have been witnessing a toxic combination of ballooning inflation fueled largely by rising energy costs, and repeated increases of interest rates to combat this trend. . At the same time, concerns have grown that higher-longer interest rates may push emerging market economies into recession. US economic growth fell quarter-on-quarter from 3.7% in Q1 2022 to 1.8% in Q2 and again in Q3, as inflation hovered around 40-year highs above 8%. was, and the Fed Fund rate increased to 3.75 percent. -4.00 percent. Germany’s economic growth saw a similar decline, from 3.6 percent in Q1 to 1.7 percent in Q2 and 1.2 percent in Q3, as did the United Kingdom’s, from 10.9 percent in Q1. 4.4 percent in Q2 and 2.4 percent in Q3.

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Why did this toxic cocktail of inflation-interest rate-growth begin around the end of the third quarter of last year? Primarily because at the end of September the first signs were published that Russia has specific plans for a full invasion of Ukraine. These reports were from many sources around observations of American intelligence officers Liv and the very unusual Russian military action on the border of Ukraine after the end of joint military exercises between Russia and Belarus. It was at this point that informed players in the oil market started buying oil in bulk. A barrel of oil was continuously sold at 65 dollars per barrel of Brent. This level reflects the equilibrium price that is reflected in the already weak demand from China, which has been passed the USA in 2017 as the largest annual crude oil earner in the world in 2017 and has been the world’s benchmark for oil since its rapid economic expansion began in the 1990s. As this Russia-Ukraine war premium decreases as Europe continues to negotiate agreements to replace energy from Russia with energy from other sources, as it will happen, this $65 per barrel level could be the main point for oil prices, up or down. back

It is worth mentioning that this level is under the effective influence.Trump’s oil price rangeEach barrel of Brent is 40-75 dollars, which is analyzed in depth in me previous book on global oil markets. Any price above US$35 per barrel would be enough for most US shale oil producers to profit. Any price above 75 US dollars per barrel is starting to increase the fear of US leaders of the exact toxic equation of rising energy prices leading to higher inflation and lower growth leading to the electoral disaster seen since September last year.

By Simon Watkins for Oilprice.com



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