Monday’s trading saw oil rise as traders digested China’s return in demand against a continued supply strain and slower growth in world economies. West Texas Intermediate (WTI) March futures contract, CLH23, closed at $74.11 per barrel, up $0.72 per barrel from Fridays close.
The economy of the Peoples Republic of China has been on traders’ minds as they process the easing of covid restrictions and further reopening of the country to travel. The International Energy Agency (IEA) predicts half of this year’s oil demand growth will come from China. Goldman Sachs is estimating China’s oil demand will increase to 16 million barrels per day, an overall annual rise of 1 million barrels per day in 2023.
Last week, OPEC+ held their meeting and agreed to continue production cuts at a rate of 2 million barrels per day. According to sources, they were waiting on new data out of China showing an increased demand before reconsidering these cuts. The strong demand outlook from China may mandate OPEC+ reconsider the cuts according to IEA. Fatih Birol, IEA’s Executive Director, stated, “If demand goes up very strongly, if the Chinese economy rebounds, then there will be a need, in my view, for the OPEC+ countries to look at their policies.”
The last consideration OPEC+ will need to make is how it plans to tackle rising demand outlook and the part Russian crude will play in meeting that demand. Since invading Ukraine, Russian oil and other products have been embargoed and price capped to an extent by the United States, European Union, and other countries around the world. Russian oil has been price capped to $45 per barrel by the European Union and Australia.
On Monday, Turkey was hit with a 7.8 magnitude earthquake leaving 4,300 people, so far, dead and thousands of others missing in the rubble. This was believed to be the largest quake Turkey has experienced since 1939. The earthquake closed operations of Turkey’s key oil terminal in Ceyhan which can export up to 1 million barrels per day. According to BOTAS press release, the terminal did not suffer any major damage, however, the pipeline and port operations would remain halted as to more closely inspect for damage. The pipeline from Turkey expands to Iraq’s northern oil export pipeline from Kirkuk.
