Oil prices rise on stronger Chinese economic recovery.

Brent Crude prices rallied to $88.50 per barrel, an increase of 1 per cent or 88 cents. In contrast, the West Texas Intermediate (WTI) US crude rose to $82.40 per barrel, or 0.93 per cent or 76 cents.

Oil prices rise due to Chinese economic recovery

Oil prices rise due to Chinese economic recovery

Brent Crude prices rallied to $88.50 per barrel, an increase of 1 percent or 88 cents

Brent Crude rose 2.8 percent and the US benchmark WTI crude locked in 1.8 percent gains last week. Brent Crude prices rallied to $88.50 per barrel, an increase of 1 percent or 88 cents. In contrast, the West Texas Intermediate (WTI) US crude rose to $82.40 per barrel, or 0.93 percent or 76 cents.

Oil prices have been increasing since the last week based on the assumption of a better economic recovery in one of the top oil-importing countries, China, due to its reopening after the zero-Covid policy.

Due to the Celebrations of the Lunar New Year last Sunday, Asian market volatility was quite low. According to experts, China’s reopening will prove to be a bullish signal for Oil prices. 

Sukrit Vijayakar, Director of Energy Consultancy at Trifecta in Mumbai, commented that the market is willing to maintain its buying stance on optimism of China’s growth.

After the Jinping government lifted the Covid-19 restrictions in China last month, overall demand in the economy is picking up pace; it is also expected that this will positively affect the oil demand and, in turn, drive the oil prices higher.

In a statement made at the World Economic Forum, held at Davos last Tuesday, Liu He, Deputy Prime Minister of China – who is also responsible for the economy – said that production had been revived to normal levels after lifting the Covid-19 restrictions last month. This signals a positive upcoming future for the Chinese economy.

Incoming data from the travel sector, which is highly interconnected with economic growth and also linked with oil prices, have seen a strong comeback. 

Analysts at ANZ Commodity have released a short note addressing a 22 percent spike in the congestion in road traffic this month in context with the month in yesteryear. This spike in Chinese road traffic before the holiday of the Lunar New Year poses a positive sign for oil consumption after the two-week vacation. They further said that this surge in oil demands is colliding with more new sanctions on Russian oil.

Fatih Birol, Head of the International Energy Agency, said last Friday that the oil markets could constrict in the shorter term this year if the Chinese economy head to their recovery as financial institutions are predicting. Birol further said that prices might not rise further not to pressurise the oil-importing developing countries. He is expecting tighter markets in 2023. He said these statements in an interview with Reuters Global Markets Forum at Davos. At that time, UK Brent Crude Futures were near $84.14 per barrel, a decrease of near about one percent.

On the sidelines of the World Economic Forum annual meeting at Davos, Birol told Reuters that, as of now, the markets are not tense, but there remains anticipation of the Chinese demand and Russian supply. On comments from the Russian side, Birol said that it could be tough for Russians to export due to Western sanctions, and they may face major challenges in the longer term. He added that the international firms that have helped the Russian oil fields become productive had left Russian soil.

Price cap on Russian crude

The European Union and Group of Seven or G7 nations have united and put a price cap on refined Russian products from the 5th of February, in addition to the price cap on Russian crude since December and an EU embargo on imports of Russian crude by water.

The G7 nations have delayed the review of the level of price cap to March. This was scheduled to be held in February. This mutually decided delay will give them ample time to evaluate the consequence of the price cap on oil products.

OPEC and IEA’s prediction

The Organisations of the Petroleum Exporting Countries (OPEC) and the International Energy Agency (IEA) have indicated that the oil demand globally will attain a record level in 2023, strengthened by economic recovery in China.

Global oil demand is presumed to rise by 1.9 million barrels per day (MBPD) this year to a record 101.7 million BPD, half of which would be gained from the Chinese side, IEA said on Wednesday.

Meanwhile, US commercial crude oil stockpiles have increased by an estimated 8.4 million barrels to 448 million barrels, beating the market expectations of a fall of around 1.75 million barrels. Higher than-expected stockpile increase signals a decrease in crude demand, capping a swift price increase.


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