Oil futures: Crude heads for second week of gains, Brent above $87/b
Quantum Commodity Intelligence – Crude oil futures Friday were trading higher, consolidating a second week of gains as China's reopening and broader demand outlook outweighed recessionary concerns and a build in US crude stocks.
March ICE Brent futures were trading at $87.41/b (1820 GMT), compared to Thursday's settle of $86.16/b, which was the highest close since early December.
At the same time, Mar23 NYMEX WTI was trading $81.56/b versus Thursday's settle of $80.61/b.
"The short-term crude demand outlook is looking strong as the US labor market remains strong and on China's reopening momentum," said Craig Erlam, senior market analyst at OANDA, although cautioned, "US recession fears are still here and they won't be going away anytime soon."
Another larger-than-expected build in US crude stocks from US Energy Information Administration (EIA) data published Thursday had briefly stalled oil prices, but ultimately bullishness over China won over.
"The sudden shift away from its zero-Covid strategy is set to unleash a wave of pent-up demand. There are signs that domestic travel is rebounding," said ANZ commodity strategist Daniel Hynes, noting that in January, traffic congestion in China's 15 key cities was 21.6% higher than in January 2022.
EIA data revealed a net build in US crude stocks of 8.4 million barrels, closely matching American Petroleum Institute (API) figures which showed crude stocks up by 7.6 million barrels last week.
However, US distillates stocks have dropped to their lowest level in seven weeks as domestic demand increased by 5%.
Meanwhile, Riyadh is engaging with Russia over keeping oil prices relatively stable, Saudi Foreign Minister Prince Faisal bin Farhan Al-Saud told Bloomberg on Thursday.
Prince Faisal added that an end to the Russia-Ukraine war could also be achieved "through negotiation."
Speaking from the World Economic Forum in Davos, JPMorgan Chase CEO Jamie Dimon believes US interest rates could go higher than what the Federal Reserve currently projects as inflation remains stubbornly high but expects oil prices to increase over the coming years.
However, a Reuters poll indicated that most economists expect the Fed will end its tightening cycle after a 25 basis point hike at each of its next two policy meetings and likely hold interest rates steady for the rest of 2023.
The president of the European Central Bank said Friday China’s decision to reopen its economy will increase inflation in Europe as they both compete for more energy.
China’s reopening is “something that will be a positive for China mostly, something that will be a positive for the rest of the world, but we will have inflationary pressure on many of us, simply because the level of energy that was consumed by China,” said Christine Lagarde at the World Economic Forum in Davos.