Crude oil market sentiment turns in favour of bulls

Although global crude oil prices tumbled during the first week of 2023, they eventually found their footing. Oil futures settled higher on Friday, marking the second weekly gain on optimism over Chinese demand following the reopening.

Key drivers behind back-to-back gains

Last week saw the highest closing levels for both Brent and US West Texas Intermediate (WTI) crude futures since December 1, 2022. The main drivers behind this upward trend were a weaker US dollar, signs that the US Federal Reserve (Fed) is close to ending its series of rate hikes, as well as expectations of a “soft landing” for the US economy, and the brightened outlook for Chinese demand.

Chinese oil demand on course to rebound

In its latest monthly report, the IEA predicted that 2023 could see global oil demand rise to the highestever level of 101.7 million bbl/day, with China driving nearly half of this global demand growth.

OPEC forecasts Chinese oil demand to rebound over the course of 2023 due to the recent relaxation of the country’s Covid measures, with the projected GDP growth of 4.8%. According to OPEC, China’s oil demand is projected to grow 800,000 bbl/day year-on-year amid expectations of higher demand for mobility and air travel, as well as increased manufacturing and construction activity.

Bullish price forecasts from analysts

Multinational investment banks and financial services companies, such as Global Goldman Sachs, ING Group and UBS Group, forecast oil prices to trend between a range of $100-110 bbl/day this year.

Meanwhile, an annual survey compiled by Reuters put the expected average of oil prices at around $90 bbl/d from 2023 to 2027.

Activities slow down amid Lunar New Year

Oil edged slightly lower on Monday as activities thinned due to many Asian-based traders leaving their desks for the Lunar New Year holiday. WTI oil futures eased toward $81 bbl/day during intraday sessions following two consecutive weeks of gains.

However, the downside was limited as traders gauged the improved outlook on Chinese demand and the impact of additional curbs on Russian energy flows.

Russian oil remains wild card

According to IEA, Russia remained a wild card that would potentially dominate the oil markets in 2023. The IEA stated that the well-supplied oil balance at the start of 2023 could quickly tighten as Russian supply slows under the full impact of western sanctions.

Meanwhile, the US Treasury announced last week that the Group of Seven (G7) officials agreed to review the price cap on Russian exports oil in March. The G7 had initially planned to review the level of the cap in February, two months after its implementation on December 5.