Oil futures: Brent around $85.50/b as near-term focus stays on China rebound 

17 Jan 2023

Quantum Commodity Intelligence - Crude oil futures Tuesday were trading higher, with global crude benchmarks nearing 2023 peaks, underpinned by China's reopening and an improved demand outlook.

March ICE Brent futures were trading at $85.42/b (1810 GMT), compared to Monday's settle of $84.46/b, with the highest price since the first trading day of the New Year registered at $86.77/b.

At the same time, Feb23 NYMEX WTI was trading $79.81/b heading towards Thursday's expiry, while the more-liquid Mar23 contract was trading at $80.04/b.

There were no CME exchange settlements Monday due to a US holiday.

"While there is still plenty of optimism around Chinese demand, in the near term the oil market remains relatively well supplied. We see further upside from 2Q23, as the market tightens," said Warren Patterson, head of ING's commodity research.

According to data from the search engine Baidu, personal mobility in China is higher at this stage in the Lunar New Year festival than in any of the last four years, as wide-ranging relaxations to the government's strict zero-Covid policy take effect.

Baidu's 'migration index' for this year's Lunar New Year showed mobility last week around 14% higher than the same period last year and around 9% more than in 2019.

Another measure of mobility – Baidu's congestion index - is at its highest point since November 2022 as of Friday, up around 7% from last year.

China's GDP grew by 3% in 2022, the National Bureau of Statistics said Tuesday, beating the 2.8% forecast in a Reuters poll.

Fourth-quarter GDP increased by 2.9%, beating expectations from the Reuters poll of 1.8% growth, which Kang Yi, director of the National Bureau of Statistics, described as "relatively fast".

Goldman Sachs sees an accelerated reopening in China and its impact on international travel potentially adding around 400,000 bpd to global oil demand, worth an extra $7/b to its 2023 Brent forecast.

The bank's 2023 Brent forecast of $97.5/b remains unchanged, reaching $105/bbl by the fourth quarter.

Elsewhere, OPEC held its oil demand growth forecast steady at 2.2 million bpd for this year on an unchanged global economy, with potential upside from China reopening and an improved outlook in Europe and the US.


On the broader macro front, investors will be watching for economic signals from this week's World Economic Forum in Davos.

OECD Secretary-General Mathias Cormann on Monday said China's reopening is "overwhelmingly positive" in the global fight to tackle surging inflation.

"We certainly very much welcome the easing of Covid related restrictions in China," Cormann told CNBC at the WEF.

"And so, China coming back into the global market in earnest and supply chains functioning more efficiently will help bring inflation down. Clearly, this is overwhelmingly positive."

However, according to a survey conducted by the WEF, two-thirds of private and public sector chief economists surveyed expect a global recession this year, including 18% considering it "extremely likely" – double the number in the previous survey conducted in September 2022.

"The current high inflation, low growth, high debt and high fragmentation environment reduces incentives for the investments needed to get back to growth and raise living standards for the world's most vulnerable," WEF Managing Director Saadia Zahidi said in a statement released with the survey.