Demand rally afoot
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China reopening drives upward oil price trend despite US recession fears
After making a dramatic leap of $2.82 Wednesday Jan. 11 to regain the $80s, Alaska North Slope crude marched $1.96 higher over the next week, from its close of $80.15 per barrel on the 11th to $82.11 Jan. 18.
The gain came despite a daily trading loss on Jan. 18, which saw ANS fall $1.14 to its close of $82.11, while West Texas Intermediate fell 70 cents to close at $79.48 and Brent fell 94 cents to close at $84.98.
The gain for the week was attributed to government-reported improvement of business conditions in China, which augured well for future demand.
Worries about a U.S. recession, however, overrode the positive China data to shave prices Jan. 18.
Oil prices turned negative, as did U.S. equity markets, after hawkish comments from U.S. Federal Reserve officials dashed hopes that the Fed would pause interest rate hikes soon.
Both St. Louis Fed President James Bullard and Cleveland Fed President Loretta Mester said rates must rise above 5% to get inflation under control.
ANS gained 72 cents Jan. 17 to close at $83.25, while WTI added 32 cents to close at $80.18 and Brent added 64 cents to close at $85.92.
Markets were closed Jan. 16 to honor Martin Luther King Jr.
On Jan. 13, ANS jumped $1.51 to close at $82.53, WTI popped $1.47 to close at $79.86 and Brent gained $1.25 to close at $85.28.
ANS rose 87 cents Jan. 12 to close at $81.02, as WTI rose 98 cents to close at $78.39 and Brent jumped $1.36 to close at $84.03.
China to lead demand recoveryChina will lead the way as oil demand continues its recovery from COVID-19 induced lows, according to the International Energy Agency.
The IEA said it expects global oil demand to rise by 1.9 million barrels per day in 2023 - to a record 101.7 million bpd - with some half the gain emanating from China as it unwinds its lockdowns and restrictions it had in place under its zero COVID policies.
Jet fuel will remain the largest source of growth, the agency said.
World oil supply growth will slow in 2023 to 1 million bpd following last year’s OPEC+ led growth of 4.7 million bpd, the IEA said. An overall non-OPEC+ rise of 1.9 million bpd will be tempered by expected declines in Russia.
The United States will be the world’s leading source of supply growth, and - along with Canada, Brazil and Guyana - it will attain an annual production record for a second straight year, the IEA said.
Russian oil exports fell by 200,000 bpd month-over-month in December to 7.8 million bpd as crude shipments to the EU declined after the EU crude embargo and G7 price cap came into effect, it said.
The Organization of the Petroleum Exporting Countries expects world oil demand growth for 2023 of 2.2 million bpd, with the Organization for Economic Cooperation and Development output growing by 0.3 million bpd and non-OECD at 1.9 million bpd, it said in its January oil market report released Jan. 17.
“This forecast remains surrounded by uncertainties including global economic developments, shifts in COVID-19 containment policies, and geopolitical tensions,” it said.
OPEC’s forecast for 2023 non-OPEC liquids production growth was unchanged from last month’s assessment at 1.5 million bpd, with the main drivers of liquids supply growth expected to be the United States, Norway, Brazil, Canada, Kazakhstan and Guyana, while declines were forecast in Russia and Mexico.
Moody’s calls for volatile Brent in 2023Moody’s forecasts that average crude oil prices in 2023 will remain below last year’s $100 per barrel average for Brent but exceed the medium-term oil price range of $50-$70, according to a report published Jan. 17.
“Oil price trajectory this year remains uncertain and depends on economic outcomes in major economies,” said co-author Madhavi Bokil, senior vice president, CSR, at Moody’s Investors Service. “We expect two opposing market forces will keep oil prices highly volatile this year: a slowdown in demand and restricted supply.”
Moody’s expects constrained oil supply to continue to support oil prices, with global spare capacity limited and concentrated in Saudi Arabia and Russia.
“Should demand for oil rebound, say when China’s transportation demand picks up, oil prices may rise abruptly to mid-2022 levels because supply will not be able to adjust quickly to the recovery in Chinese demand,” it said.
Brent crude oil prices declined to around $80 on Jan. 3 from well over $120 in June 2022, a 33% decline in just six months, despite global supply constraints and lingering uncertainty about Russian producers’ ability to maintain export volumes amid sanctions, Moody’s said.
“The decline in oil prices since June reflects reduced market expectations for growth in oil demand amid heightened recession risks in the US and Europe and a short-term decline in oil demand from China amid COVID restrictions,” Moody’s said. “These factors outweighed market concerns about supply constraints and declining global inventory levels.”
“As estimates for 2023 oil demand moderated, so did the risks of spiking prices from the December implementation of the US and European oil price cap, and Russia’s threat to divert oil and refined product sales away from countries supporting the price cap,” it said.