China Optimism Comes To Fore Again And Boosts Oil By Over 1%

Still, analyst warn of market uncertainty in the near term: File Image/Pixabay

After spending most of last week eclipsed by analytical worries over the notion of central banks hiking interest rates and possibly ruining demand, China – or, specifically, its post-lockdown potential for a huge resurgence in activity and spending – captured the hearts and minds of traders on Monday and caused crude to rise over 1 percent.

Based on last week's prediction from Wood Mackenzie, FGE, Energy Aspects, and S&P Global Commodity Insight that China's crude imports may rise between 500,000 and 1 million barrels per day (bpd) this year to as high as 11.8 million bpd, Brent on Monday settled up $1.07, or 1.3 percent, at $84.07 per barrel.

West Texas Intermediate crude for March, which expires on Tuesday, rose 85 cents, or 1.1 percent, at $77.19.

Craig Erlam, senior markets analyst at OANDA, said, "The optimism around China today may be responsible for the gains we're seeing in crude, which would make a lot of sense given it's the world's largest importer and expected to recover strongly from the COVID transition."

Another indication of China's recovery: PetroChina's Guangdong Petrochemical and Jiangsu Shenghong Petrochemical, with a combined capacity of 520,000 bpd, are expected to enter commercial operation in coming months.

Oil was also supported by news that India, which ranks as the world's third largest oil importer after China, rose to a six-month high in January, according to government data.

Trading on Monday was thin due to a U.S. holiday, but not thin enough for players to completely overlook persistent uncertainty in the market looking ahead, due partly to fallout from sanctions on Russian energy and the rerouting of global flows.

This caused Arne Lohmann Rasmussen, head of research at A/S Global Risk Management Ltd., to take a cautious stance when describing the market in the near term: on Monday he said, "We still expect the market to eventually turn its attention to an expected tighter market balance in the second half and the Chinese reopening.

"More robust data currently fuel expectations that the Fed will have to hike rates to a higher level and keep them there for an extended period."