Oil Bounces on Chinese Economic Growth Data

By Adedapo Adesanya

Oil settled higher on Tuesday after China posted weak but expectation-beating annual economic growth data.

Brent crude futures grew by $1.46 or 1.7 per cent to $85.92 per barrel, as the US West Texas Intermediate (WTI) crude futures rose by 32 cents or 0.4 per cent to trade at $80.18 per barrel.

China’s gross domestic product expanded by 3 per cent in 2022, missing the official target of around 5.5 per cent and marking the second-worst performance since 1976.

However, the data still beat analysts’ forecasts after China rolled back its zero-COVID policy in December.

Oil was also bolstered by a weaker US Dollar, which fell against most major currencies on Tuesday due to expectations of a possible Bank of Japan policy shift that could be a precursor to adopting a tighter monetary policy.

A weakening Dollar makes greenback-denominated oil less expensive for other currency holders.

Meanwhile, with the focus on China, the Organisation of the Petroleum Exporting Countries (OPEC) said Chinese oil demand would rebound this year due to the relaxation of the country’s COVID-19 curbs and drive global growth, and sounded an optimistic note on the prospects for the world economy in 2023.

In its monthly report, the group said world demand in 2023 will rise by 2.22 million barrels per day, or 2.2 per cent, unchanged from last month’s forecast, which had ended a series of downgrades.

If this happens, it could lead to upward demand revisions and support oil prices, which have rallied in 2023 on Chinese demand hopes.

As well as China, the report said the US Federal Reserve was managing a soft landing for the U.S. economy – which it called the most likely outcome – and further commodity price weakness was positive.

A monthly report from the International Energy Agency (IEA) on Wednesday will shed more light on the strength of oil demand while recession fears loom.

Analysts expect OPEC and the wider OPEC+ group to step up and defend an $80 per barrel floor under oil prices should recessions drag oil further down.

The first meeting of OPEC and its allies, OPEC+ for this year, is in early February, but some analysts expect that the group will wait to see how much the EU embargo on imports of Russian oil products – effective February 5 – would disrupt the markets before taking any decision on changing the collective oil production targets.