The country’s economic reopening following COVID-19 restrictions is expected to increase demand for the commodity
China is largely responsible for the current upticks in global crude oil prices, according to Tom Kloza, global head of energy analysis for Oil Price Information Services in Lakewood, New Jersey.
He suggested that China’s economy will begin to pick up steam in 2023 after the government loosened its super-tight COVID-19 restrictions.
“You can call it ‘the China Syndrome’ but there’s a consensus view that China’s reopening is going to ratchet crude oil demand,” Kloza stated.
China said recently that its economic growth during 2022 was three percent rather than the projected 5.5 percent, pointing to its zero COVID policies for the slippage.
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Added to that, the International Energy Agency projected global demand for crude in 2023 will be a record 101.7 million barrels per day, up by nearly two percent compared to 2022.
Contributing to the upward swing in crude prices are expectations that Russian oil supplies will become tighter during the year and major movement in the oil market, according to Kloza.
“You also have speculative and investor money coming back into oil futures,” he said, noting that benchmark crude oils such as Brent and West Texas Intermediate closed higher for eight consecutive business days as of Jan. 17.
He said that’s likely the first time since 2019 that a rally of that length has happened. However, there was still the question of a global recession lurking in the background.
“I think a lot of people who are trumpeting higher oil prices think we are going to have a soft landing, in that there won’t be a big global recession, maybe a very shallow one,” Kloza suggested.
With Brent in the neighbourhood of US$86 per barrel and WTI around $81, those upticks have been running counter to the U.S. government’s means of calculating inflation, more so with gasoline prices climbing higher as well, Kloza said.
Running contrary to upward movement in crude and gasoline has been diesel fuel, as the northeastern United States and Europe are having a warmer than normal winter, with Kloza calling it “the winter that wasn’t.”
He suggested the markets aren’t expecting any tight oil supplies during the first quarter of 2023 and that the effects of China reopening its economy will be felt a few months down the road.
Meanwhile, he said North American production is fine and consumption across the continent has been dulled by the mild winter.
