- Oil prices rise on optimism of recovery in China's fuel demand.
- China's GDP growth exceeds predictions despite missing target.
- OPEC forecasts increase in Chinese oil demand and maintains global demand forecast.
Oil prices rose on Wednesday, continuing the upward trend from the previous session, driven by optimism that a relaxation of China's strict Covid-19 restrictions will lead to a recovery in fuel demand in the world's top oil importer. Brent crude futures were up 52 cents, or 0.6%, at $86.44 a barrel at 0151 GMT, following a 1.7% rally in the previous session. U.S. West Texas Intermediate (WTI) crude CLc1 futures gained 55 cents, or 0.7%, to $80.73 a barrel, having risen 0.4% on Tuesday.
China's gross domestic product (GDP) expanded 3% in 2022, missing the official target of "around 5.5%" and marking its second-worst performance since 1976. However, the data still beat analysts' forecasts after China rolled back its zero-COVID policy in December. This development has led to optimism that fuel demand in China will pick up, which in turn has lent support to oil prices.
The Organization of the Petroleum Exporting Countries (OPEC) said in a monthly report that Chinese oil demand would grow 510,000 barrels per day (bpd) this year after posting its first contraction for years due to COVID-19 containment measures. However, OPEC kept its 2023 global demand growth forecast unchanged at 2.22 million bpd.
Analysts also attribute the market sentiment to China's recent shift in its COVID-19 policy and OPEC's optimistic outlook on China's demand. Toshitaka Tazawa, an analyst at Fujitomi Securities Co Ltd, said "Growing hopes that China's fuel demand will pick up after a recent shift in its COVID-19 policy lent support to oil prices. OPEC's optimistic outlook on China's demand also supported the market sentiment, predicting a bullish tone for this week."
At the World Economic Forum in Davos, China's Vice-Premier Liu He on Tuesday welcomed foreign investment and declared his country open to the world after three years of COVID-19 isolation, which also added to the positive sentiment.
Oil prices were also boosted by a weaker U.S. dollar, which steadied on Wednesday but had fallen against major currencies the previous day due to expectations that a possible Bank of Japan policy shift could be a precursor to a tighter monetary policy. A weaker dollar makes greenback-denominated oil less expensive for other currency holders and encourages buying.
On the supply-side, oil output from top shale regions in the United States is due to rise by about 77,300 bpd to a record 9.38 million bpd in February, according to the U.S. Energy Information Administration (EIA) in a productivity report on Tuesday. Additionally, Russia expects Western sanctions to have a significant impact on its oil product exports and production, likely leaving it more crude oil to sell, according to a senior Russian source with knowledge of the nation's outlook.