Crude oil edges higher; Weekly gain likely on Chinese growth optimism

By Peter Nurse  

Investing.com -- Oil prices edged higher Friday, poised to record a second weekly gain, on hopes the ending of COVID restrictions in China will result in a sharp increase in economic activity and thus demand for energy from the world’s largest crude importer.

By 09:30 ET (14:30 GMT), U.S. crude futures traded 0.2% higher at $80.75 a barrel, while the Brent contract rose 0.3% to $86.39 a barrel. Both contracts are on course to record gains of over 1% this week.

Optimism is rife that the week-long Lunar New Year holiday, when vast swathes of the most populous country in the world are minded to travel, will result in a jump in crude demand, particularly after Beijing relaxed almost all of its stringent anti-COVID restrictions earlier this month.

Both the Organization of Petroleum Exporting Countries and the International Energy Agency forecast, in monthly reports released earlier this week, that a Chinese economic recovery will spur record-high crude demand in 2023.

The IEA increased its oil demand growth forecast for 2023 to 1.9 million barrels a day, from 1.7M barrels, which would leave global oil demand at a record 101.7M barrels a day in 2023. 

“Some upward revisions were made to Chinese oil demand following the reopening and this should leave China making up almost 50% of global demand growth,” said analysts at ING, in a note.

However, gains have been limited by concerns that the major Western economies are heading into recession as their central banks continue to tighten monetary policy to combat inflation.

European Central Bank President Christine Lagarde warned on Thursday that inflation figures remain "way too high,” reiterating the ECB's plan to bring inflation in the Eurozone back down to its 2% target through aggressive monetary policy decisions. 

In the U.S., Federal Reserve Governor Lael Brainard added her name to a long list of Fed officials who have voiced their opinion that rates will need to stay elevated for a period to further cool inflation. 

With this in mind, “the IEA expects that the oil market will be in surplus over 1Q23, however, will start to tighten from 2Q23 onwards and with more pronounced deficits over 2H23,” ING added.

The Baker Hughes report on drilling rigs and the CFTC’s positioning data close off the week later in the session.