Oil prices lifted on China optimism as traders await U.S. inflation data

NEW YORK (Jan 12) Oil futures rose early Thursday, finding continued support on optimism over prospects for increased crude demand from China’s reopening of its economy after lifting COVID restrictions, while awaiting U.S. inflation figures that will be watched for clues to how aggressive the Federal Reserve will be as it continues to raise interest rates.

• West Texas Intermediate crude for February delivery CL00, 1.40% CL.1, 1.40% CLG23, 1.40% rose $1, or 1.3%, to $78.41 a barrel on the New York Mercantile Exchange.
• March Brent crude BRN00, 1.42% BRNH23, 1.42%, the global benchmark, was up $1.12, or 1.4%, at $83.79 a barrel on ICE Futures Europe.
• Back on Nymex, February gasoline RBG23, 1.34% gained 1.4% to $2.469 a gallon, while February heating oil HOG23, 0.12% fell 0.3% to $3.209 a gallon.
• February natural-gas futures NGG23, 4.30% rose 3.4% to $3.795 per million British thermal units.

China’s strict COVID restrictions have been seen keeping a lid on crude demand from one of the world’s largest energy importers since 2020. The lifting of those curbs has sparked expectations for a strong pickup in crude demand.

“A number of signs, including an increase in crude oil import quotas, suggest a recovery in Chinese oil demand this year,” said Warren Patterson and Ewa Manthey, commodities strategists at ING, in a note. “Although the big uncertainty remains just how big a recovery we will actually see. In our balance sheet, we assume that China will make up 50% of the 1.7 million barrels a day of global demand growth expected this year.”

However, the December U.S. consumer-price index, due at 8:30 a.m. Eastern, will be closely watched to assess the outlook for future Fed rate hikes. A further slowdown in inflation could buttress hopes the Fed will be less aggressive than policy makers have indicated and that a sharp slowdown in economic activity can be avoided.

“A softer landing for the U.S., and perhaps elsewhere, combined with a strong economic rebound in China following the current Covid wave could make for a much better year than feared and stimulate extra crude demand,” said Craig Erlam, senior market analyst at Oanda, in a note. “Of course, this case very much focuses on the promising scenarios but they are also increasingly looking like the more plausible ones as well.”

MarketWatch