Oil Rises as Traders Weigh China Demand Outlook, Russian Supply

Oil rose on expectations of rising demand in the wake of China’s reopening, while the US dollar eased and risks to Russian energy supplies came into sharper focus with fresh curbs looming.

(Bloomberg) — Oil rose on expectations of rising demand in the wake of China’s reopening, while the US dollar eased and risks to Russian energy supplies came into sharper focus with fresh curbs looming.

West Texas Intermediate climbed past $82 a barrel following a back-to-back weekly gain that drove the US benchmark to the highest close since mid-November. While a weaker US currency supported prices Monday, trading volumes in Asian hours were held back, with national holidays to mark the Lunar New Year affecting key markets including China and Singapore.

Oil has shaken off a weak start to 2023 as China’s outlook has brightened. Expectations that the Federal Reserve is close to ending its series of aggressive rate hikes have also buoyed prices.

Russia’s seaborne crude exports dropped last week after surging in the previous seven days, contributing to the smallest inflow into the Kremlin’s war chest since Moscow sent its forces into Ukraine. Moscow is set to publish a decree detailing a ban on Russian firms selling oil to clients adhering to a price cap, Kommersant said. 

Further restrictions on Russian energy flows are due to kick in early next month as the war in Ukraine grinds on. US Treasury Secretary Janet Yellen expressed confidence at the weekend that curbs on Russian crude sales can be expanded to refined products. 

Europe’s diesel prices surged to their highest in more than two months earlier on Monday, ahead of an EU ban on seaborne imports from Russia. Stockpiles are set to fall from February through May once deliveries of Russian-origin product stop in the coming weeks, Energy Aspects said in a note. France’s CGT union is planning strike action this week in the energy sector, further stoking fuel-supply concerns. 

“The fears of recession are receding and therefore the dollar is weakening, which is helping oil.” said Tamas Varga, PVM Oil Analyst. “Tomorrow we’ll have the US and EuroZone manufacturing and services PMI readings; if they confirm the economy is in relatively good shape, the upward trend will continue.”

Both professional and retail investors see higher oil prices over the next six months according to the latest MLIV Pulse survey. Retail traders, in particular, are even more bullish than their professional counterparts. An exchange traded oil product run by WisdomTree saw a record influx of cash last week — a further sign of reviving investor appetite for the sector. 

Net bullish bets on Brent and West Texas Intermediate crude surged to a two-month high last week, ICE Futures Europe and CFTC futures and options data on four contracts show. Open interest, the total number of contracts held, has also been rising.

Elements, Bloomberg’s daily energy and commodities newsletter, is now available. Sign up here.

More stories like this are available on bloomberg.com

©2023 Bloomberg L.P.