Oil Mixed On U.S. Stockpile Builds But Still Bullish Over China

Road traffic congestion in China post lockdown is up significantly: File Image/Pixabay

Investors taking profits was attributed to mixed oil trading on Monday, but continued optimism over a post-lockdown China revival, kindled by further promising data, means the commodity will likely continue to gain strength at least in the near term.

Brent settled up 56 cents at $88.19 per barrel, while West Texas Intermediate dipped 2 cents at $81.62 per barrel.

Despite the tepid trading, Sukrit Vijayakar, director of Trifecta, said the market wants to hold on to long positions in case Chinese growth picks up, and the optimism surrounding China’s economic potential after abandoning its zero Covid tolerance policies was supported on Monday by ANZ noting road traffic congestion in the country’s 15 key cities country so far this month was up 22 percent year on year.

Craig Erlam, analyst at Oanda Corp., said, “While the reopening [of China] itself will no doubt prove complicated, particularly over the festive period, early indications suggest that there has been an increase in activity, which means that the economy could perform better,” and he predicted Brent prices would range between $90 and $100.

John Kemp, market analyst at Reuters, was more elaborate in his prediction about how China’s recovery would unfold: he forecasted that “Given the speed of transmission, the current infection wave is likely to be completed by the end of February or early March…..by April, there is likely to be a very large increase in domestic and international passenger travel by air, rail and road, driving a large increase in fuel consumption.”

Kemp went on to speculate that “China’s re-opening industrial economy is also likely to stimulate domestic diesel consumption and spill-over stimulus to other economies in Asia,” but he added that “the biggest risk to the economy and oil consumption is that the economic revival rekindles inflationary pressures and forces the major central banks to persist in raising interest rates longer and higher.”

Meanwhile, hedge funds and other money managers purchased the equivalent of 89 million barrels in the six most important petroleum contracts over the seven days ending on Jan. 17, the fastest rate in over two years and a sign that fears about a global recession are easing somewhat.

Also, Brent on Monday crossed above its 100-day moving average for the first time since November, which could encourage more buyers to enter the market.

However, while oil traders chose to overlook demand concerns, signs that demand in some parts of the world may not be as strong as some would like continued to surface: WTI’s minuscule dip was said to have been spurred mainly by Wood Mackenzie data showing that U.S. inventories at Cushing, Oklahoma, the delivery point for benchmark U.S. crude futures, rose by about 1.6 million barrels from Jan 13-17.