Oil headed for a second weekly gain as optimism over stronger Chinese demand overshadowed a weaker outlook in other major economies.
West Texas Intermediate rose past $81 a barrel, putting the US benchmark on course for a gain of almost 1% this week. Chinese consumption has been picking up after the world’s top crude importer abandoned harsh virus restrictions, with signs of increased buying by refiners in the physical market.
Still, weakness elsewhere has limited the rally. European Central Bank President Christine Lagarde vowed monetary policy would remain tight as inflation is still too high. In the US, Federal Reserve Vice Chair Lael Brainard said rates will need to stay elevated for “some time.”
Crude has been whipsawed in the first three weeks of the year as investors weigh opposing forces: the return of Chinese demand and the possibility of sanctions restricting supply from Russia. Against that backdrop, there are widely divergent outlooks from banks on where crude is headed. Goldman Sachs Group Inc. says Brent will top $100 a barrel in the second half of the year, while JPMorgan Chase & Co. says more geopolitical ructions are needed for that to happen.
“The rally also implied that the market awaits the upcoming OPEC meeting, the Fed’s interest rate decision and the implementation of the EU sanctions on Russian oil sales with irrefutable confidence.” said Tamas Varga, analyst at PVM Oil Associates Ltd.
Prices
- WTI for March delivery rose 0.6 per cent to $81.09 a barrel at 10:53 p.m. in London.
- WTI February futures expired, last trading at $80.96.
- Brent for March settlement advanced 0.6 per cent to $86.65 a barrel.
Trading activity in crude markets has picked up after liquidity dwindled last year, exacerbating prices swings. Holdings of Brent futures contracts have climbed to their highest since March as futures, and open interest in US benchmark WTI has also gained.
In the coming weeks, traders will be looking for any impact on Russian refined-product shipments caused by a Group of Seven price cap and European Union import-ban that start on Feb. 5. The moves follow a similar US-led measures on crude shipments introduced last year. Some European countries are pushing for the crude cap to be lowered, but the Biden administration is resisting.
© 2023 Bloomberg L.P.
