Oil futures rose Wednesday to their highest intraday levels since early December as traders remained upbeat about the reopening of China’s economy after COVID restrictions were lifted, with the International Energy Agency boosting its forecast for crude demand growth in 2023.
Price action
- West Texas Intermediate crude for February delivery
CL.1,
+2.18%CL00,
+2.18%CLG23,
+2.18%
rose $1.70, or 2.1%, to $81.88 a barrel on the New York Mercantile Exchange after trading as high as $82.04. - March Brent crude
BRN00,
+1.75%BRNH23,
+1.75%,
the global benchmark, was up $1.53, or 1.8%, at $87.45 a barrel on ICE Futures Europe, after touching a high of $87.50. Both WTI and Brent traded at their highest intraday levels since Dec. 5, according to FactSet. - Back on Nymex, February gasoline
RBG23,
+1.49%
climbed 1.8% to $2.59 a gallon, while February heating oil
HOG23,
+1.75%
gained 2.3% to $3.3265 a gallon. - February natural gas
NGG23,
-4.68%
lost 3.4% to $3.464 per million British thermal units after posting a gain of 4.9% on Tuesday.
Market drivers
The Paris-based IEA lifted its forecast for oil-demand growth this year by nearly 200,000 barrels a day to 1.9 million barrels a day. The extra demand means that the IEA now expects total oil demand this year to average 101.7 million barrels a day, well above pre-pandemic levels and a record amount.
China’s strict COVID restrictions were seen keeping a lid on crude demand until December, but the country’s rapid lifting of curbs on business and consumer activity has now spurred optimism over the demand outlook, helping to lift crude demand in the new year.
The IEA raised its forecast for Chinese demand by 100,000 barrels a day to 15.9 million barrels a day.
“The return of China’s consumption engines is enormous for the oil market outlook,” said Stephen Innes, managing partner at SPI Asset Management. “While the industrial engine is revving up, guzzling down oil products, consumers will soon catch up at the petrol pump.”
Crucially, the accumulation of household savings is “massive, and has risen fast over the past three years,” he said in a market update. “Ultimately, when Chinese consumers start spending, it will boost oil prices.”
Output data from China showed that oil refiners processed around 14.17 million barrels a day (mb/d) of crude in December, down from 14.69 mbd in November but up 2% year over year, noted Warren Patterson and Ewa Manthey, strategists at ING, in a note. Full-year 2022 numbers averaged 13.57 mb/d, down almost 4% year over year.
“Weaker domestic demand and low refined product export quotas would have weighed on refinery runs through 2022. Activity should recover this year, given the expected recovery in oil demand following China’s reopening, along with the government releasing larger volumes of refined product export quotas more recently,” they wrote.
Back in the U.S., weekly data on domestic petroleum supplies from the Energy Information Administration will be released Thursday, a day later than usual because of Monday’s Martin Luther King Jr. Day holiday.
The previous EIA report, released last week, showed commercial crude stocks adding 19 million barrels for the week ended Jan. 6 —- the third highest increase on record, analysts said.
“Traders are betting that the figure is more of a short-term anomaly, caused by trade disruptions from extreme winter weather in late December and a temporary drop in refinery activity,” Robbie Fraser, manager, global research & analytics at Schneider Electric, wrote in daily note.
