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Oil futures ended lower Wednesday, with optimism over the demand outlook stemming from China's continued relaxation of COVID-19 curbs offset by a surge in cases of the disease.

"The somewhat firmer dollar and doubts about how quickly Chinese demand would bounce back following the country's scrapping of its quarantine rules weighed on oil and other commodities such as copper on Wednesday," said Raffi Boyadjian, lead investment analyst at XM, in a note.

"With Covid infections still very high, it could be several weeks if not months before demand fully recovers in China and oil prices are slipping today as investors reassess the outlook," he wrote.

With the winter storms, this week's API report may be distorted.

API

• Crude -1.30mm
• Cushing -338k
• Gasoline +510k
• Distillates +38k

US Crude stocks fell for the 2nd straight week (6th of the last 7 weeks) according to API, which reported a 1.30mm barrel drawdown...

(Click on image to enlarge)

Source: Bloomberg

WTI hovered around $78.75 ahead of the API report and was unmoved by the small crude draw...

(Click on image to enlarge)

Amid the extremely low liquidity, volatility is heightened this week after the Kremlin said this week it would ban exports of Russian crude oil and refined products to foreign buyers that adhere to a price cap.

“The outlook remains highly uncertain for the oil market,” said Craig Erlam, senior market analyst at Oanda.

China’s success in pivoting away from Covid-Zero could be key to a recovery but it will take time to understand the implications on oil demand, he said.

But oil still looks set to close the year with a gain.

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