Oil prices extended Tuesday's gains into Wednesday, rising by 1% in early European trade, as market sentiment turned bullish on hopes that China's reopening would boost demand growth and major developed economies may avoid recessions.
The U.S. benchmark, WTI Crude, was trading up by 0.95% at $81.00 as of 9:05 CET. Brent Crude, the international benchmark, was rising by 0.76% at $86.60, building on the gains from Tuesday, which saw the strongest settlement in Brent since early December.
On Tuesday, OPEC Secretary General Haitham Al-Ghais said that signs of cautious optimism about a recovery in economies and oil demand had started to emerge, thanks to the Chinese reopening. The most recent GDP data out of China, while pointing to the lowest economic growth since the 1970s, beat the consensus estimate.
"The good outweighs the bad with the outlook for China's economic future. China's latest swathe of economic data points provide significant optimism that their reopening momentum could impress throughout the year," Ed Moya, Senior Market Analyst, The Americas, at OANDA, said on Tuesday.
Yet, Moya warned that "The China reopening optimism induced oil rally might have a little more in it, but it should stall out soon. Energy traders are probably a couple dollars away from massive technical resistance."
Much of the latest optimism was fueled "by headlines out of the World Economic Forum in Davos. OPEC's monthly oil market outlook report released on Tuesday lent support by maintaining global demand growth forecast for 2023 unchanged from December," Vanda Insights commented on Wednesday.
The International Monetary Fund's First Deputy Managing Director Gita Gopinath signaled that the IMF could soon upgrade its economic growth forecasts. Global growth will improve in the second half of this year and into 2024, Gopinath said in a message from Davos.
Assuming that OPEC+ production remains at levels similar to those in December, OPEC numbers in its latest monthly report on Tuesday pointed to the global market in balance to a small surplus over the first half of 2023, ING said.
"However, the group does see a tighter market over the second half of 2023 if OPEC production policy remains unchanged," ING strategists Warren Patterson and Ewa Manthey said on Wednesday.
By Tsvetana Paraskova for Oilprice.com
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Tsvetana is a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews. More