The belief that China’s strict Covid-19 limitations will be lifted will result in a recovery in fuel demand in the world’s largest oil importer drove up oil prices on Wednesday, extending gains from the previous session.
Following a 1.7 percent gain in the previous session, Brent oil futures increased 63 cents, or 0.73 percent, to $86.55 a barrel by 0401 GMT. Following a 0.4 percent increase on Tuesday, US West Texas Intermediate (WTI) crude futures increased 68 cents, or 0.85 percent, to $80.56.
China’s economic growth abruptly plummeted to 3 percent in 2022, falling short of the stated goal of “about 5.5 percent” and representing the country’s second-worst performance since 1976. However, even after China started to relax its zero-Covid policy in early December, the data was still above experts’ expectations.
Chinese oil demand will increase by 510,000 barrels per day (BPD) this year, according to the Organisation of the Petroleum Exporting Countries (Opec), after dropping for the first time in years in 2022 as a result of Covid control measures. Opec, however, maintained its 2.22 million BPD estimate for the growth of world demand for 2023.
“Growing hopes that China’s fuel demand will pick up after a recent shift in its Covid-19 policy lent support to oil prices,” said Toshitaka Tazawa, an analyst at Fujitomi Securities Co Ltd.
“Opec’s optimistic outlook on China’s demand also supported the market sentiment,” he said, predicting a bullish tone for this week.
In addition, the market anticipated that US crude supplies would decline by about 1.8 million barrels despite increased oil product inventories, according to a Reuters poll.
On the supply side, the US Energy Information Administration (EIA) predicted in a productivity report on Tuesday that oil output from the country’s main shale regions will increase by around 77,300 BPD to a record 9.38m BPD in February.
According to a senior Russian source familiar with the country’s stance, Russia anticipates that Western sanctions will have a considerable impact on its exports of oil products and its output, possibly leaving it with extra crude oil to sell.
“Potential supply losses from Russia and the reopening of China could see the market tighten quickly,” ANZ analysts said in a note to clients.
The market is also closely watching for more demand data from China in the International Energy Agency’s monthly report due later on Wednesday, according to ING analysts in a client note.