Crude oil prices could this week reverse a streak of weekly losses, buoyed by expectations of a demand rebound in China.
Although trade began today with a loss for both WTI and Brent, oil prices are set to end the week higher after Chinese statistical authorities reported that manufacturing activity had grown at the fastest pace in more than 10 years in February.
On the bearish side sits a ten-week streak of crude oil inventory additions in the United States that have pushed the total from below the five-year average to some 9% above it, easing concerns about supply.
There was also the latest inflation data from the eurozone, which showed a larger-than-expected increase to 8.5% in February. High inflation leads to an economic slowdown and, consequently, lower demand for oil and oil products.
Meanwhile, a signal from the Fed that it may stop raising interest rates, at least for a while, later this year, added upward pressure to prices.
In supply news, OPEC’s total output rose last month as Nigeria ramped up production to the highest in a year, at 1.44 million. This contributed to a total 120,000 bpd increase in total OPEC output in February. The increase more than offset a decline of 49,000 bpd booked for January.
China, then, remains the single biggest bullish factor for oil prices, with expectations that the country will see strong economic growth this year. The country’s GDP is forecast to expand by more than 5% year-on-year, which would undoubtedly boost demand for oil significantly.
Yet concern about inflation in other parts of the world, notably the EU and the United States, remains substantial and acts as a cap on prices.
By Irina Slav for Oilprice.com
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There is, however, another bullish factor which will soon make itself felt: Russia’s production cut of 500,000 barrels a day (b/d) which went into effect on March 1.
China’s rebound and Russia’s cut are bullish enough to eclipse rising oil inventory in the United States by 9%, rising inflation in the EU and the US Federal Reserve indicating that it could ease its hiking of the interest rate in the closing months of the year.
That is why I strongly believe that that Brent crude will hit $90 in the first half of 2023 and touch $100 during the year.
Dr Mamdouh G Salameh
International Oil Economist
Global Energy Expert