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Oil steadies as investors look to improvement in Chinese demand

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Oil steadied as traders looked to a revival in Chinese demand this year after data showed that the economy fared better than expected last quarter, with further clues on the outlook to come in an OPEC analysis.

Global benchmark Brent held above $84 a barrel after shedding 1% on Monday. China’s economy grew by a larger-than-expected amount in the fourth quarter as virus curbs ended, data from Beijing showed. That may bolster traders’ expectations for higher energy consumption this year.

Ahead of the data, Goldman Sachs Group Inc. reiterated its case for higher crude prices, arguing that Western economies would avoid recession, aiding consumption, just as Chinese demand improves and Russian supply drops. Commodity markets are now pricing in a recession “that we don’t believe is going to materialise,” the bank said in a note dated January 16.

Crude has had a rocky start to 2023, sinking in the opening week on concerns over a global slowdown before rebounding. Aside from China, oil has found support from growing expectations that the Federal Reserve is nearing an end to its aggressive series of interest-rate hikes and a weakening dollar.

The “better-than-expected data from China might support prices as the focus is currently on Chinese demand,” said Ravindra Rao, head of commodities research at Kotak Securities Ltd. in Mumbai, citing the end of virus curbs.

Prices:
  • Brent for March settlement added 0.2% to $84.64 a barrel at 1:35 p.m. in Singapore.
    • Earlier, the contract dropped as much as 0.5%.
  • WTI for February delivery traded at $79.29 a barrel following a US public holiday on Monday.
    • The contract closed at $79.86 on Friday.

Later Tuesday, the Organisation of Petroleum Exporting Countries is scheduled to release its monthly analysis of the global market. The wider 23-nation OPEC+ group agreed to collectively reduce supplies by 2 million barrels a day from November, and then hold steady for the rest of the year.

Russia’s seaborne crude exports soared last week to the highest level since April, suggesting that it has — for now — overcome an initial hit to flows that followed European sanctions. Still, falling oil prices have meant the Kremlin’s crude revenues are coming under further pressure.

© 2023 Bloomberg

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