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Oil was set to end the week little changed as concerns of an economic slowdown were tempered by optimism over Chinese demand.
West Texas Intermediate futures traded near $81 a barrel after closing 1.1% higher on Thursday. US economic growth beat expectations in the last quarter of 2022, but there’s still a considerable risk of a recession this year. The Federal Reserve is expected to raise interest rates further next week.
Oil has recovered from a steep slump at the start of the year, largely on hopes that Chinese consumption will rebound rapidly following the dismantling of the nation’s Covid Zero policy. Trafigura Group sees “a lot of upside” as pent-up demand is unleashed, and liquidity is returning to the futures market.
Traders are assessing the potential fallout from European Union sanctions on Russia’s seaborne shipments of petroleum products early next month. The EU is considering a plan to cap the price of premium refined fuel exports like diesel at $100 a barrel, with a lower $45 cap for discounted products.
“The theme for oil this year is China plus supply tightness from Russia, against a recessionary backdrop,” said Sean Lim, an analyst at RHB Investment Bank Bhd in Kuala Lumpur. “We expect Brent to average $85 in the first quarter.”
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The forward curve is starting to indicate signs of tightness in the oil market after a period of weakness. The prompt spread for global benchmark Brent — the gap between the two nearest contracts — firmed in a bullish backwardation pattern after spending most of the past two months in contango.
© 2023 Bloomberg
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