Oil fluctuated in tandem with weak China economic data, sustaining 2023 hopes

  • 17-January-2023

After China posted its weakest economic growth in nearly half a century on Tuesday, oil prices were mixed. However, the country's U-turn in its COVID policy in late-2022 supported hopes of a recovery in fuel demand this year.

By 0414 GMT, Brent crude futures had recovered some of the 1% loss from the previous session, rising 16 cents, or 0.2%, to $84.62.

From Friday's close, U.S. West Texas Intermediate (WTI) crude futures fell 60 cents, or 0.8%, to $79.26. Since Monday was Martin Luther King Day in the United States, there was no agreement.

“Brent crude has gained nearly 10% over the past 10 days as optimism over China’s reopening boosted sentiment. However, the outlook for the rest of the global economy is uncertain,” ANZ commodity analysts said in a client note.

Seaborne exports increased to 3.8 million barrels per day last week, the highest level since April, according to ANZ, putting additional pressure on the market due to an increase in Russian crude supply.

In 2022, China's gross domestic product increased by 3%, exceeding the official goal of "around 5.5%" and marking the second-worst performance since 1976. The previous quarter was particularly hard hit by strict Covid curbs and a slump in the property market.

Despite the poor economic data, analysts still overestimated it because Beijing's December repeal of its zero-Covid policy increased consumption.

China's oil refinery output in 2022 fell by 3.4% from the previous year, marking the first annual decline since 2001, according to data released on Tuesday. However, daily oil throughput in December rose to the second highest level of 2022.

“With a stronger end to 2022 than we had expected, plus indications of stronger retail expenditure ahead, the outlook for GDP growth in 2023 has improved compared to our prior outlook,” Iris Peng, chief economist of greater China from ING bank, said in a note.

However, Peng cautioned that China still faced significant obstacles, including the likelihood of recessions in Europe and the United States this year.

Two-thirds of private and public sector economists polled in a bearish survey that was presented at the annual Davos summit anticipated a global recession this year, with approximately 18% considering it to be “extremely likely.”

At the same time, PwC's survey of chief executive opinions was the most negative since the poll started a decade ago.

Oil prices are also being impacted by a rise in the dollar from its seven-month lows because a stronger dollar makes oil more expensive for people holding other currencies.

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