China’s reopening is a bigger driver for oil prices than cap on Russian crude, Singapore foreign minister says

China’s reopening after the pandemic will be a bigger driver for oil prices than the cap on Russian oil, Singapore Minister of Foreign Affairs Vivian Balakrishnan told CNBC on Tuesday.

“I would expect to see a significant opening,” Balakrishnan said. “Now that has profound implications for the global economy, more so than an oil price cap.”

Balakrishnan’s comments come after the Group of Seven’s $60 price cap for Russian seaborne oil and ban on Russian crude took effect Monday. Russia has claimed these measures would not affect its actions in Ukraine.

Oil prices climbed in Asia trading Monday after China, the world’s largest oil importer, signaled further easing of Covid-19 measures. Prices were further buoyed by OPEC+ saying it would maintain its current policy of decreasing oil production from November until the end of 2023.

China’s oil demand has declined by about a million barrels this year, according to Rob Thummel, portfolio manager at Tortoise Capital.

“The factor that will drive [China’s oil] demand higher … will be obviously the reopening of the economy, but more importantly, building an inventory,” he said.

“Oil inventories around the world are low and I think the world has figured out that energy security is pretty important,” Thummel said. “So that will be a big driver both in China — as well as India — going forward and that will drive demand growth going forward. And once again … likely result in higher prices.”

Several cities in China relaxed Covid testing rules in recent days. On Tuesday, Beijing said negative Covid tests will no longer be mandatory for entering most public or residential areas. 

Last week, Chinese health officials announced a new push to get the country’s elderly population further vaccinated, emphasizing that the shots still prevent severe illness and death.