Oil advanced to its highest since early December on optimism of increasing global economic demand.
(Bloomberg) — Oil advanced to its highest since early December on optimism of increasing global economic demand.
West Texas Intermediate climbed as much as 2.7% to hit $82.38, the highest since Dec. 5. Demand is expected to reach a record daily average this year with about half of the growth coming from a rebounding China’s, the International Energy Agency said in its latest outlook.
The US benchmark has rallied more than 5% since last week as the dollar weakens and equity markets grow stronger with traders betting that the Fed’s tightening cycle is coming to a close. US producer prices dropped last month by the most since the start of the pandemic, the latest indication that inflationary pressures are waning.
With prices strengthening, key market gauges are reflecting signs of renewed optimism. The difference between the nearest two WTI December contracts — a favored speculative trade among hedge funds — is the biggest in two months.
Amid the IEA’s bullish demand outlook, Saudi Aramco said it was optimistic that consumption will increase. Traders are also waiting for signs of Russia’s production path when sanctions on refined fuels take effect early next month.
“Two wild cards dominate the 2023 oil market outlook: Russia and China,” according to the IEA’s monthly report. “The well-supplied oil balance at the start of 2023 could quickly tighten however as Western sanctions impact Russian exports.”
The rising sense of optimism in the oil market, as well as raw materials more broadly, has helped to boost liquidity, with total oil futures open interest rising to the highest since June. Last year, liquidity fell, exacerbating price swings.
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