Oil Surges After Fed Chair Perceived As Softening Rate Hike Stance

Meanwhile, China's recovery adds to a sudden bullish sentiment: File Image/Pixabay

While it could be argued that his comment was ambiguous, U.S. Federal Reserve chair Jerome Powell's remarks on Tuesday that very strong jobs data show "why this will be a process that takes a significant period of time" when it comes to tightening monetary policy caused crude traders to boost  oil prices by over 4 percent.

The comment reportedly eased market concerns over rate hikes.

Brent shot up $2.70, or 3.3 percent, to $83.69 per barrel, while West Texas Intermediate rose $3.03, or 4.1 percent, to $77.14 per barrel.

Powell's remark came on the heels of Saudi Arabia raising prices for its flagship crude for Asian buyers for the first time in six months due to expectations of demand recovery in China, and this in turn inspired Phil Flynn, senior market analyst at Price Futures Group Inc., to say, "That seemed to send home the message that the China reopening is real, and if Saudi Arabia is not afraid to raise prices on oil then that means demand is pretty good."

But all in all the oil market remains unchanged, with every bit of bullish news countered by bearish predictions, case in point: the Energy Information Administration said in its Short Term Energy Outlook on Tuesday that U.S. crude production will rise in 2023 while demand will stay flat.

The EIA believes crude production will rise by 590,000 barrels per day (bpd), to 12.49 million bpd in 2023, and by another 160,000 barrels to 12.65 million bpd next year.

The Agency went on to forecast that U.S. petroleum and other liquid fuels consumption will stay flat at 20.3 million bpd this year, with the U.S. economy contracting slightly in the first six months.

By contrast, demand in China will supposedly increase by 700,000 bpd this year and by 400,000 bpd in 2024 due to the abandonment of its zero-COVID strategy.

Indeed, China continues to be regarded as the great hope for a robust 2023, and Michal Meidan, a director at the Oxford Institute for Energy Studies, remarked that "China's reopening certainly seems to be bolstering demand for crude: both domestic and export margins are looking strong."

Meidan's sentiment was supported by OilChem, which reported that at the end of last month, margins had returned to where they were before the spring Shanghai lockdown crushed demand; this coincided with another increase in export quotas to 19 million tons, 46 percent higher than the same period last year.