Oil Rises On Optimism For China - Despite Demand Possibly Peaking Next Year

Meanwhile, the EIA pivots from surplus to deficit predictions: File Image/Pixabay

Oil traders on Tuesday did what they do best: make a sudden flip-flop on sentiment, with the commodity rising again on concerns of tight supply in Europe and on hopes of increasing demand in China.

Brent settled up 5 cents at $72.19 per barrel, and West Texas Intermediate settled up 22 cents at $68.59 per barrel.

While the guarded optimism about China was a hangover of earlier news that Beijing would adopt "appropriately loose" monetary policy in the New Year to encourage economic growth, the concerns about Europe focused on winter demand.

Phil Flynn, senior market analyst with Price Futures Group Inc., said, "Hedge funds are starting to buy on tightness of supply in European markets this winter."

The whiplash-inducing pivot from worry over a supply glut to a deficit was hardly confined to observers of Europe; the U.S. Energy Information Administration on Tuesday predicted that global oil consumption should exceed output by 100,000 barrels per day (bpd) in 2025, compared with the EIA's forecast last month for a 300,000 bpd surplus.

Jon Byrne, analyst at Strategas Securities, said the reversal was the result of  "a market that got too bearish and has since revised away worst-case-scenario outcomes."

However, Byrne added that such prognostications won't have much impact: "We maintain our outlook for a range-bound market in the $65 to $75 range for WTI."

In the spirit of new found and possibly fleeting bullishness, traders shrugged off a report from the American Petroleum Institute that U.S. crude inventories rose by 499,000 barrels for the week ending November 29, compared to expectations for a 1.3 million barrel draw.

Also largely overlooked was state-owned China National Petroleum Corporation (CNPC) saying
that China's oil demand could peak as early as 2025 due to the rapid growth of electric vehicles and LNG trucks; CNPC last year predicted peak demand would not occur until 2030.

This falls in line with predictions made in September by Robert Hardy, CEO of Vitol Group, that "Gasoline is likely to peak this year or next year in China — not because nobody's moving, but simply because the fleet is slowly changing towards electric vehicles."