Oil prices hit 7-week high on increased oil demand outlook

Oil prices remained strong on Monday, hitting a 7-week high, with WTI price testing the $82.3 per barrel resistance, but failing to overcome this end dropping to $81.4 by the end of the day. If the WTI price declines, it may encounter support near $70.2 per barrel, while resistance may be found near $82.3 per barrel.

Increased optimism about China’s economic reopening is boosting oil prices. China is the world’s largest energy importer and prolonged lockdowns have dampened oil demand. China released GDP data last week for the final quarter of 2022, which exceeded expectations, providing support for oil prices. 

China’s economy has suffered from prolonged lockdowns and the country’s debt has ballooned over the past few years. The Chinese government eased some of its strident Covid regulations recently, abandoning its zero-Covid policy. China has also re-opened its borders after almost three years, fuelling hopes of economic recovery. Recent data shows a marked increase in air travel and road traffic in China after the restrictions were eased, indicating increased economic activity and oil demand.

The global economic outlook is improving with the US economy leading the way, increasing the oil demand outlook. US inflation seems to be cooling, which may give the Federal Reserve some leeway toward scaling back its interest rate increases. US PPI data last week fell below expectations, reducing Fed rate hike expectations and driving oil prices up. PPI declined by 0.5% in December, versus estimates of a 0.1% drop. Headline inflation also dropped to 6.5% year-on-year in December from 7.1% in November. 

Aggressive rate hikes stifle economic activity fuelling recession fears. As inflation starts to cool though, central banks are beginning to lower the pace of rate hikes, raising oil demand expectations.

OPEC released its monthly report last week, raising optimism about the oil demand outlook. The organization left its global oil demand forecast unchanged, boosting oil prices, as markets had been expecting a drop in oil demand outlook.

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Written by:
Myrsini Giannouli

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