China remains the main driver of oil prices

Oil prices stabilized on Thursday at their highest level since Dec. 1 as the market turned bullish on China’s oil demand this year.

China’s reopening should boost oil demand growth and push oil higher if most developed economies manage to avoid recessions, analysts said.

China likely picked up the pace of crude oil stockpiling last year, says estimates by Clyde Russell, Reuters Asia Commodities and Energy columnist, based on Chinese data on imports, domestic production and refinery throughput rates.

More inventory in commercial and strategic storage could mean that imports from China may not be as strong as expected. But it could also mean that refiners are bracing for a surge in demand in the coming months once the wave of Covid exits after restrictions are lifted subsides.

Since China does not report its crude oil inventories, it is only guesswork as to how much crude the country has stockpiled over the past year.

As China reopened its borders in early January, authorities released a massive batch of allowances independent refiners to import crude oil.

Related: EIA Inventory Report Lowers Oil

There is one certainty in oil markets: economic growth in China has been and will continue to be a key driver of global oil demand, capable of moving oil prices in either direction.

Over the past few days, the main driver for oil prices has been the Chinese reopening and the improving outlook for Chinese demand due to said reopening. OPEC and the International Energy Agency (IEA) said in their respective monthly reports this week that the outlook for global oil demand is improving thanks to China’s exit from the “zero Covid” policy.

China’s reopening expected to boost global oil demand a record of 101.7 million barrels per day (bpd) this year, up 1.9 million bpd from 2022, the IEA said in its report, raising its estimate of demand growth for 2023 by 200,000 bpd compared to growth of 1.7 million bpd expected in December.

“Two wild cards dominate the oil market outlook for 2023: Russia and China,” the IEA said. said in its report on the oil market.

“China will drive almost half of this global demand growth, although the shape and speed of its reopening remains uncertain.”

OPEC also expressed more optimism about Chinese oil demand and the global economy this year in its Oil Market Monthly Report (MOMR).

China’s reopening is expected to boost demand and “in addition, China’s plans to increase fiscal spending to support economic recovery are expected to support oil demand in manufacturing, construction and construction sectors.” mobility,” OPEC said.

Overall, economies appear more resilient than expected, the cartel said.

“Global momentum in 4Q22 appears stronger than expected, potentially providing a solid foundation for 2023, particularly in OECD economies. 2022 growth in the Eurozone and the United States exceeded forecasts previous ones,” OPEC noted.

Moreover, the United States seems to have a better chance of avoiding a recession this year.

“Upside potential could come from the US Federal Reserve’s successful management of a soft landing in the US. This is the most likely outcome, given the expected slowdown in inflation and the momentum sufficient underlying demand,” according to the organization.

Recession fears may have faded, but the oil market continues to react with a sell-off at every point of weak economic data from the US, Europe or China.

Nonetheless, market sentiment has turned bullish on China over the past two weeks, which has driven oil prices higher. This highlights that the Chinese economy and oil demand will continue to pull oil markets this year, alongside economic performance elsewhere, the scale of Russian oil supply losses and OPEC+ group policy. aimed at balancing the market and supporting prices.

By Tsvetana Paraskova for Oilprice.com

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