fall in oil prices; Outlook positive on Chinese demand expectation

At around 12 noon, the March contract of Brent on the Intercontinental Exchange (ICE) traded at $87.52 a barrel, down 0.13% from its previous close. West Texas Intermediate (WTI) fell 0.9% to $81.57 a barrel, down 0.09% from its previous close.

Despite the fall in prices, experts believe that the near-term outlook remains positive on the back of expected recovery in demand in China following the recent easing of travel restrictions.

Oil demand in China rose nearly 1 million barrels per day (bpd) sequentially to 15.41 million bpd in November, according to the most recent data from the United Organization Data Initiative. China is the second largest importer of crude oil in the world and the market sentiment is supported by the expectation of increase in demand.

Last week, Fatih Birol, executive director of the International Energy Agency (IEA), said energy markets could tighten in 2023, especially if the Chinese economy recovers and the Russian oil industry struggles under sanctions.

Ravindra V. Rao, Head of Commodity Research at Kotak Securities Ltd. said, “Both OPEC and IEA cited recovery in Chinese demand as the driving force behind oil consumption in 2023. The International Energy Agency (IEA) removed its forecast for growth in oil demand. About 200,000 bpd to 1.9 million bpd average for 2023 at a record 101.7 million bpd, with nearly half the increase coming from China, while OPEC forecasts a 510,000 bpd increase in Chinese demand in 2023 as China lifts COVID restrictions.”

They said expectations of Chinese demand as well as price cap on Russian oil imports, which is trending through the global markets, could support crude prices in the near term.