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Covid-19 and climate worries may not keep oil prices down for long
- China’s economy is firing up, supporting demand for industrial metals and oil. Once the rest of the world follows China into economic recovery, high demand and short supply might mean higher oil prices
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Covid-19 is still raging across the world, global economic activity remains impaired and there is a worldwide drive towards renewable energy as governments look to tackle climate change. That hardly seems a recipe for a higher oil price, but first impressions can be deceiving.
While the price of oil had tanked as markets recognised both the enormity of the pandemic and its knock-on effect on economic activity, crude oil prices have since bounced back amid growing optimism about the roll-out of effective vaccines to combat Covid-19.
With coronavirus still raging, the market cannot fully price in the prospect of a post-pandemic vaccine-driven global economic recovery. Yet, if China is any indicator, there may be grounds for optimism. Beijing has got to grips with the coronavirus even as other major economies are trying to contain the pandemic within their borders.
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Data last week showed China’s manufacturing activity again looking healthy. Posting the sharpest advance since November 2010, the Caixin/Markit manufacturing purchasing managers’ index rose to 54.9 last month, eclipsing an already improved 53.6 reading in October.
The recent rise in the prices of industrial metals such as aluminium and copper reflect the effect of China’s post-pandemic economic renaissance. China’s economy is firing up, supporting demand for oil, and once the rest of the world follows China into economic recovery, it would hardly be surprising for the price of crude to behave like those of aluminium and copper.
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