Oil heads for big weekly gain on China demand hopes

By Myra P. Saefong and William Watts

Oil futures rose Friday and were on track for a weekly gain of around 7%, lifted by optimism over demand from China as the country lifts its strict COVID-19 curbs and reopens its economy.

Price action

Market drivers

Oil has bounced sharply this week, taking back the bulk of the previous week’s steep slide.

Oil has gained as “volume comes back on expectations of record-breaking Chinese oil demand, as well as expectations that the Fed will only raise rates by a quarter point in February,” said Phil Flynn, senior market analyst at The Price Futures Group, in a daily report. “That is because of signs in the CPI that inflation may be easing,” raising expectations for a slowdown in the pace of Fed monetary tightening and a soft landing for the U.S. economy.

In a note, Michael Tran, energy market strategist at RBC Capital Markets, said, “while early, there is already indication suggesting that the Chinese consumption machine” is ramping up.

China’s December crude imports came in at 10.9 million barrels a day, up 830,000 barrels a day from the previous 11 months of 2022, he said, while satellite imaging indicators suggest that crude inventories have been steady over recent weeks, but down around 30 million barrels from the summer 2022 peak.

“Given the focus on energy security, we anticipate that Chinese imports will continue to pick up, particularly as refinery runs ramp and stockpiling crude remains a strategic priority,” Tran wrote.

Oil saw an additional boost Thursday after U.S. data showed the annual rate of inflation fell for the sixth month in a row to 6.5% from 7.1%, or the lowest level in more than a year.

While everyone in the oil complex sees upside risks to Chinese growth and the consumption recovery supporting higher oil prices, Friday’s rally moved “beyond the China border as lower inflation impulses encourage a soft landing as the Fed is more likely to pause,” said Stephen Innes, managing partner at SPI Asset Management, in emailed comments.

-Myra P. Saefong


(END) Dow Jones Newswires

01-13-23 1009ET

Copyright (c) 2023 Dow Jones & Company, Inc.

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