Oil prices gained on Wednesday after rallying on Tuesday due to the easing of restrictions in China and the cooling of US inflation, paving the way for a softer Federal Reserve interest rate increase this week.
After rallying up 3.4 per cent to settle at $80.68 on Tuesday, Brent, the benchmark for two thirds of the world’s oil, was 2.42 per cent higher at $82.63 at 11.36pm UAE time. West Texas Intermediate, the gauge that tracks US crude, was up 2.47 per cent at $77.25 a barrel.
Stock markets and oil prices rallied on Tuesday after the consumer price index in the US cooled to 7.1 per cent in November, down from 7.7 per cent in October, after soaring to a pandemic high of 9.1 per cent last June.
The moderation in the consumer price growth was lower than the consensus forecast of 7.3 per cent, marking the slowest pace of price growth since December 2021 and signalling the possibility that inflation in the world's largest economy may have peaked after significant interest rates increases.
The Fed is expected to raise interest rates for the seventh time on Wednesday. The central bank is likely to raise rates by half a percentage point after four consecutive increases of 75 basis points.
Separately on Tuesday, Opec stuck to its oil demand growth forecast for this year and 2023.
The oil producers group now expects world economy to grow 2.8 per cent this year, up from its previous estimate of a 2.7 per cent growth.
The 2023 global economic growth forecast was left unchanged at 2.5 per cent.
“Risks to global economic growth remain skewed downwards due to challenges including high inflation, monetary tightening by major central banks, [and] high sovereign debt levels in many regions,” Opec said.
“Moreover, geopolitical risks and the pace of the Covid-19 pandemic during winter remain uncertain.”
China, the world’s second-largest economy and top crude importer, is facing a surge in Covid cases after the country eased its zero-tolerance measures for the first time in three years.
Brent lost more than 10 per cent of its value last week on fears of a global recession.
The oil demand was “adjusted higher” in the third quarter amid ‘’better-than-expected” transportation fuel consumption in the Organisation for Economic Co-operation and Development (OECD) countries, said Opec.
This was offset by a slowdown in non-OECD countries and “sluggish” industrial activity in China, the group added.
However, crude prices have gained about 3 per cent this week amid optimism about a rebound in Chinese demand.
“Crude prices are rising on hopes China’s demand situation will quickly improve and on concerns that supplies will be kept tight by both Russia and Opec,” Edward Moya, senior market analyst at Oanda, said.
“China’s reopening is coming, it won’t happen overnight, but it will provide a major boost to demand in the outlook next quarter.”
Opec+, the alliance of 23 oil-producing countries, aims to reduce market fluctuations and will continue to focus on stability in the year ahead, Saudi Arabian Energy Minister Prince Abdulaziz bin Salman, told a forum in Riyadh on Sunday.
The alliance's decision to cut production by 2 million barrels per day on October 5 proved to be the right one, given recent developments, he said.
Amid uncertainty around EU sanctions on Russian crude, the Opec+ decided to stick to its existing oil production targets earlier this month.
But the group said it was ready to address “market developments” and support the “balance of the oil market and its stability if necessary”.
Global economic growth is forecast to be as weak as it was in 2009 — during the global financial crisis — as a result of the Ukraine conflict and its impact on the world economy, according to the Institute of International Finance.
The world economy is projected to grow 1.5 per cent next year, compared with 0.6 per cent in 2009, as per IIF estimates.
This assessment follows the International Monetary Fund's move to slash its global economic growth forecast for next year due to the effects of the Ukraine conflict, broadening inflation pressures and a slowdown in China.
The fund maintained its global economic estimate for this year at 3.2 per cent but downgraded next year's forecast to 2.7 per cent — 0.2 percentage points lower than the July forecast.
