Traders even managed to shrug off a rise in U.S. crude inventories: File Image/Pixabay
Oil prices on Wednesday enjoyed a third straight day of gains, this time on the strength of the International Energy Agency forecasting strong demand in the New Year due partly to the sanctions against Russia causing tightening supply.
The rise was despite increases in U.S. stockpiles and the Federal Reserve sustaining a policy of rate hikes to fight a looming recession.
West Texas Intermediate rose $1.89 to settle at $77.28 per barrel, while Brent rose $2.02 to settle at $82.66 per barrel.
Oswald Clint, analyst, Bernstein
By 2Q a new price rally will be upon us
Traders shrugged off the American inventory build of an estimated 10 million–plus barrels last week (the most since March of 2021), perhaps mindful of supply interruption due to TC Energy shutting the Keystone oil pipeline due to a leak; a partial restart was scheduled for Wednesday, with full resumption expected on Dec. 20
Conversely, traders' spirits were buoyed by the IEA, which said that consumption will climb to a record 104 million barrels per day (bpd) late next year.
Forecasting that China's oil demand would recover next year after a 400,000 bpd contraction in 2022 due to its zero-Covid infection policy, the IEA raised its 2023 oil demand growth estimate to 1.7 million bpd for a total of 101.6 million bpd.
For its part, the Organization of the Petroleum Exporting Countries (OPEC) forecast that oil demand will grow by 2.25 million bpd over next year to 101.8 million bpd.
The most immediate effect of the prediction – and accompanying Wednesday's oil rise – was that Brent returned to a backwardated market structure whereby front-month loading barrels trade higher than later deliveries; this suggests that oversupply worries are subsiding.
Also contributing to a growing bullish spirit on Wednesday was data from China showing that road and air traffic has rebounded sharply, and this caused Oswald Clint, analyst at Bernstein, to remark, "The setup remains supportive of triple digit prices…the recent volatility presents a good entry point ahead; balances may be looser for the next quarter but by 2Q a new price rally will be upon us."