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Oil prices settled on Thursday at their highest level since December 1 as the market is turning bullish on China’s oil demand this year.
China likely accelerated the pace of crude oil stockpiling last year, according to estimates by Reuters’ Asia Commodities and Energy Columnist Clyde Russell based on Chinese data on imports, domestic production, and refinery processing rates.
More stocks in commercial and strategic storage could mean that China’s imports may not be as strong as anticipated. But it could also mean that refiners are preparing for a surge in demand in the coming months once the exit Covid wave after the restrictions were dropped fades.
There is one certainty in the oil markets – the economic growth in China has been and will continue to be a key factor in global oil demand, capable of moving oil prices in either direction.
Over the past few days, the key driver of oil prices was the Chinese reopening and the improved outlook on Chinese demand due to said reopening. OPEC and the International Energy Agency (IEA) said in their respective monthly reports this week that the prospects of global oil demand were improving thanks to the Chinese exit from the ‘zero Covid’ policy.
China’s reopening is set to drive global oil demand to a record high of 101.7 million barrels per day (bpd) this year, up by 1.9 million bpd from 2022, the IEA said in its report, raising its demand growth estimate for 2023 by 200,000 bpd from 1.7 million bpd growth expected in December.
“Two wild cards dominate the 2023 oil market outlook: Russia and China,” the IEA said in its Oil Market Report.
“China will drive nearly half this global demand growth even as the shape and speed of its reopening remains uncertain.”
Fears of recession may have subsided, but the oil market continues to react with selloffs to every weak economic data point from the United States, Europe, or China.
Nevertheless, market sentiment has turned bullish on China over the past two weeks, which resulted in rising oil prices. This highlights the fact that the Chinese economy and oil demand will continue to drive oil markets this year, alongside economic performance elsewhere, the extent of Russian oil supply losses, and the policy of the OPEC+ group to balance the market and support prices.
Source: OilPrice
