Oil leaps on optimism about Chinese demand

London — Oil prices rose on Wednesday to their highest since early December on optimism that the lifting of China’s strict Covid-19 curbs will lead to a fuel demand recovery in the world’s top oil importer.

Brent crude futures were up $1.21, or 1.41%, to $87.13 a barrel by 9.42am GMT, while US West Texas Intermediate (WTI) crude futures were up $1.36, or 1.7%, to $81.54. Both were at their highest since early December.

China’s economic growth slowed sharply to 3% in 2022, missing the official target of “around 5.5%” and marking its second-worst performance since 1976.

But the data still beat analysts’ forecasts after China started rolling back its zero-Covid-19 policy in early December. Analysts polled by Reuters see 2023 growth rebounding to 4.9%.

The lifting of Covid-19 restrictions in China is set to boost global oil demand in 2023 to a record high, the International Energy Agency (IEA) said on Wednesday, while price cap sanctions on Russia could dent supply.

The IEA report followed expectations from Opec that Chinese oil demand would grow by 510,000 barrels per day (bpd) in 2023 after contracting for the first time in years in 2022 due to Covid-19 containment measures.

But Opec kept its 2023 global demand growth forecast unchanged.

Referring to China, PVM analyst Stephen Brennock said that “no other single entity will play a more significant role in shaping oil balances over the coming months”.

Further support came from expectations of a drawdown in US crude stocks by around 1.8-million barrels in the week to January 13, according to a Reuters poll.

The poll was conducted ahead of reports from the American Petroleum Institute, an industry group, due at 9.30pm GMT on Wednesday.

On the supply side, oil output from top shale regions in the US is due to rise by about 77,300 bpd to a record 9.38-million bpd in February, the US Energy Information Administration (EIA) said on Tuesday. 

Reuters