Oil advanced to trade at its highest since early December on optimism that Chinese demand will recover.
West Texas Intermediate climbed above $81 a barrel, building on a modest gain on Tuesday and last week’s jump of more than 8 per cent. While global oil markets are set to face a bigger surplus than expected in the first quarter, they will tighten in the second half, the International Energy Agency said in its latest outlook. Average demand is also poised for a record this year.
With prices on a tear, key market gauges are showing signs of renewed optimism. The difference between the nearest two WTI December contracts — a favoured speculative trade among hedge funds — is the biggest in two months. US crude futures rose for a 9th day on Wednesday, the longest run since January 2019.
Amid IEA’s bullish demand outlook, Saudi Aramco said it was optimistic that consumption will increase. Traders are also waiting for signs of Russia’s production path when sanctions on refined fuels take effect early next month.
“Two wild cards dominate the 2023 oil market outlook: Russia and China,” the IEA’s monthly report said. “The well-supplied oil balance at the start of 2023 could quickly tighten however as western sanctions impact Russian exports.”
Crude has navigated a rocky start to the year, sinking in the opening week on global slowdown concerns. It has since rebounded and is now up for the year. Aside from China’s pivot, oil has found support from a weaker dollar and expectations the Federal Reserve is coming to the end of an aggressive run of interest-rate hikes.
- WTI for February delivery rose 1.7 per cent to $81.57 a barrel at 9:49 a.m. in London.
- Brent for March settlement advanced 1.4 per cent to $87.15 a barrel.
The rising sense of optimism in the oil market, as well as raw materials more broadly, has helped to boost liquidity, with total oil futures open interest rising to the highest since June. Last year, liquidity fell, exacerbating price swings.
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