Oil Rebounds As Optimism Over China Reaches Fever Pitch

Meanwhile, the IEA says Russia will lose the energy battle: File Image/Pixabay

The near-obsessive expectation that China will soon recover economically after abandoning its zero Covid lockdown policy helped propel crude prices upwards again on Thursday, after a dip in the previous session and despite news of a second straight week of inventory builds in the U.S.

Brent settled up $1.18, or 1.4 percent, at $86.16 per barrel, while West Texas Intermediate settled up 85 cents, or 1.1 percent, at $80.33 per barrel

Thursday's optimism was kindled by the latest export figures published by the Joint Organisations Data Initiative, which showed that Chinese oil demand climbed by nearly 1 million barrels per day (bpd) from the previous month to 15.41 million bpd in November, the highest level since February.

Also, JPMorgan Chase & Co. analysts raised their estimate for China's oil demand growth, saying consumption is on track to rise to a record 16 million bpd.

Traders meanwhile were not swayed by Energy Information Administration data showing that U.S. crude stocks last week rose by 8.4 million barrels, their biggest gain since June 2021: Giovanni Staunovo, analyst at UBS, called this disclosure a "bearish report, with large crude and petrol inventory increases, but an improvement from last week, with a recovery of implied oil demand and refinery runs from the impact of Storm Elliot."

But Rebecca Babin, a senior energy trader at CIBC Private Wealth Management, refused to fall in with the enthusiasm over China allowing its citizens relatively free movement after three years of lockdowns.

She said, "The macro picture is creating a lot of friction to the rally in crude, and it will be hard for the commodity to continue to outperform in the near term until we see concrete evidence that demand is China is accelerating or macro headwinds cool down."

In other oil related news on Thursday, the latest chapter of whether the European Union sanctions against Russia will crush the former Soviet Union's economy or do more harm to Europe unfolded on Thursday with remarks from Fatih Birol, executive of the International Energy Agency.

Birol told media, "Europe is having major economic problems, but for Russia, Europe was a very, very important client…..so, to find a client for gas and oil so easily to replace Europe will be extremely difficult.

"I know there are some countries in Asia, [such as] China and India, that are benefittng from this situation, and they are buying a lot of Russian oil, but I would be very careful to believe that those countries' imports will, both in volume terms and revenue terms, combine to what Europe was doing."

Birol concluded that "Russia will face major difficulties both for oil and gas exports and, in my view, when we look at the next couple of quarters and years, Russia will lose the energy battle."