Oil keeps pushing higher on bets China demand set to strengthen

Oil headed for the highest close since early December on optimism Chinese demand will recover rapidly following the abandonment of Covid Zero, and ahead of the International Energy Agency’s latest outlook.

West Texas Intermediate climbed toward $81 a barrel, building on a modest gain on Tuesday and last week’s jump of more than 8%. OPEC Secretary General Haitham Al-Ghais said he’s “cautiously optimistic” about the global economy after the cartel forecast a balanced crude market this quarter.

The IEA, which advises major economies, issues its monthly analysis later on Wednesday. It may reflect China’s swift reopening as well as the expected impact of sanctions on Russian flows in response to the war in Ukraine.

Crude has navigated a rocky start to the year, sinking in the opening week on global slowdown concerns, before rebounding strongly. Aside from China’s pivot, oil has found support from a weaker dollar and expectations the Federal Reserve is coming to the end of an aggressive run of interest-rate hikes.

China’s economic recovery is “boosting confidence that we could see a strong recovery in Chinese oil demand this year,” said Warren Patterson, head of commodities strategy at ING Groep NV. “The market will likely be keeping an eye on any potential demand revisions in today’s IEA monthly report.”

Prices:

• WTI for February delivery rose 0.8% to $80.84 a barrel at 5:16 a.m. in London.
• Brent for March settlement advanced 0.8% to $86.57 a barrel.

Reflecting the upbeat tone from China, the world’s largest crude importer, the nation’s top economic official said that the economy will likely rebound to its pre-pandemic growth trend this year. Last week, a Bloomberg survey showed analysts expect Chinese crude consumption to hit a record in 2023.

Goldman Sachs Group Inc, one of the most vocal commodity bulls, upgraded its forecast for China’s gross domestic product growth this year after stronger-than-expected economic data earlier this week. The bank now projects the economy will expand 5.5% in 2023, up from 5.2% previously.

The rising sense of optimism in the oil market, as well as raw materials more broadly, has helped to boost liquidity, with total oil futures open interest rising to the highest since June. Last year, liquidity fell, exacerbating price swings.

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