Oil prices steady amid hopes of fuel demand recovery in China

Futures have gained for two straight weeks on an improving economic outlook in the world's top crude importer

Pedestrians with face masks at Qianmen shopping street in central Beijing. China has reopened its borders after three years. AP

Oil prices were steady in morning trade on Monday amid hopes of a fuel demand recovery in the world's top crude importer, China.

Brent, the benchmark for two thirds of the world’s oil, was 0.63 per cent higher at $88.18 a barrel at 4.00pm UAE time. West Texas Intermediate, the gauge that tracks US crude, was up 0.51 per cent at $82.02 a barrel.

Brent settled 1.71 per cent higher at $87.63 a barrel on Friday, while WTI was up 1.28 per cent at $81.64. Futures have gained for two straight weeks on optimism about an improving economic outlook in China.

“Positivity around China’s demand recovery, along with the International Energy Agency’s warning that even record oil supplies wouldn’t be enough to meet demand this year should help to underpin further gains in oil futures,” Jeanne Walters, senior economist at Emirates NBD, said.

Global oil demand will surge to a “record” this year following the end of coronavirus restrictions in China, the IEA said in a report last week.

Oil demand will rise by 1.9 million barrels per day to 101.7 million bpd in 2023, said the IEA, which had previously estimated a growth of 1.7 million bpd.

Nearly half the gain in crude demand will come from China, which has reopened its borders for the first time in three years, triggering a sharp rise in airline bookings.

Futures have also been responding to further sanctions on Russian crude exports.

The Group of Seven advanced economies have agreed to review the price cap on Russian exports in March — later than originally planned — to assess the market after an EU embargo on Russian crude products takes effect on February 5, media reports said, citing comments from US Treasury officials.

Investment bank Goldman Sachs, which expects Brent to rise to $105 a barrel by the fourth quarter, has said that only a combination of “bearish shocks” would affect its forecast, such as flat China demand in the first quarter and no Russian supply disruption.

Despite bearish forecasts from the International Monetary Fund and the World Bank on the global economy, Goldman Sachs has said the US, the world's biggest economy, may avoid a recession. It also expects the global economy to have a soft landing.

China’s economy, which grew 3 per cent in 2022, is set to improve and is highly likely to reach a normal growth rate in 2023, Liu He, a Vice Premier, told the World Economic Forum in Davos last week.

To meet growing demand, the Opec+ group is likely unwind its production cuts of 2 million bpd for the second half of this year, according to analysts.

The group of 23 oil producing countries is maintaining a “wait and see” attitude to oil market fundamentals, consultancy Energy Aspects said in a report last week.

“The group is unlikely to make changes to current quota policy until the impact of tighter Western sanctions on Russian oil supply and China’s reopening on demand become clearer.”