February 2, 2023

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Oil prices are up about 1% on Reuters’ optimism about China’s recovery

©Reuters. Pumpjacks are seen against the setting sun at Daqing Oil Field in Heilongjiang province, China, 7 December 2018. REUTERS/Stringer

By Rowena Edwards

LONDON (Reuters) – Oil prices rose to their highest since early December on Wednesday on optimism that China’s lifting of tough COVID-19 restrictions will prompt a rebound in fuel demand at the world’s top oil importer.

Futures were up $1.21, or 1.41%, to $87.13 a barrel by 0942 GMT, while US West Texas Intermediate (WTI) crude oil futures were up $1.36, or 1.7%, to $81.54 . Both were at their highest levels since early December.

China’s economic growth slowed sharply to 3% in 2022, missing the official target of “around 5.5%” and marking the second-worst performance since 1976.

But the data still beat analysts’ forecasts after China began rolling back its zero-COVID policy in early December. Analysts polled by Reuters expect growth to recover to 4.9% by 2023.

China’s lifting of COVID-19 restrictions will boost global oil demand to a new record high this year, the International Energy Agency (IEA) said on Wednesday, while price cap sanctions against Russia could hurt supply.

The IEA report followed expectations by the Organization of the Petroleum Exporting Countries (OPEC) that Chinese oil demand would grow by 510,000 barrels per day (bpd) this year after contracting in 2022 for the first time in years due to COVID containment measures.

But OPEC kept its forecast for global demand growth for 2023 unchanged.

Regarding China, PVM analyst Stephen Brennock said that “no other single entity will play a more significant role in shaping oil balance sheets in the coming months.”

Further support came from expectations of inventories falling by around 1.8 million barrels in the week ended Jan. 13, according to a Reuters poll. [EIA/S]

The poll was conducted ahead of reports from the American Petroleum Institute, an industry group, due Wednesday at 4:30 p.m. ET (2130 GMT).

On the supply side, oil production from the United States’ best shale fields is expected to rise by about 77,300 bpd in February to a record 9.38 million bpd, the US Energy Information Administration (EIA) said Tuesday.