1. Market review: Crude oil rose by more than 8% last week, the largest increase in three months, mainly due to China’s adjustment of epidemic prevention measures, which made the market optimistic about the prospect of oil demand. Last Friday, oil prices continued to rise from the European market. WTI crude oil closed up 2.28% at $80/barrel; Brent crude oil broke through $85/barrel and closed up 1.87% at $85.36/barrel.
2. UAE Minister of Energy: OPEC+ production capacity fell by 3.7 million barrels per day due to reduced investment in the oil industry.
3. US Energy Security Envoy Hochstein: The US can sell more oil from reserves if needed. U.S. drillers added oil and gas rigs for the first time in three weeks, according to Baker Hughes.
4. The European Commission stated that the EU’s natural gas imports will hit a 10-year high of US$110 billion in the third quarter of 2022, with the largest amount of LNG imported from the United States. Hungarian Prime Minister Viktor Orbán said the U.S. had certainly benefited from the Ukraine crisis, while Europe was the main economic victim.
5. Lithuanian natural gas operator Amber Grid stated that the natural gas pipeline connecting Lithuania a nd Latvia exploded, the fire has been extinguished, and Latvian natural gas supply has been restored.
6. The Russian Ministry of Defense announced that the Russian army has taken control of the Soledar region. The Ukrainian army said fighting was still taking place in the Soledar city. Russian missiles hit vital infrastructure in Kyiv and Kharkiv, and air defense sirens sounded across much of Ukraine.
7. According to data released by the US Centers for Disease Control and Prevention (CDC) last Friday, the XBB.1.5 subvariant is spreading rapidly in the United States, becoming the strain with the fastest rising momentum in the United States. In the week ending January 14, XBB. .1.5 has accounted for 43% of new cases in the United States.
Craig Erlam, Market Analyst, OANDA
Oil prices may face downward pressure
Oil prices rose again on Friday, buoyed by renewed optimism about the outlook for interest rates; for now the fact remains that the global economy will face enormous challenges for at least the first half of the year, but lower terminal rates and even rate cuts later in the year Possibly, will cushion the blow and potentially allow oil prices to outperform current expectations. At the same time, with the recovery of China’s demand, the demand for crude oil will be greatly benefited, which in turn will give good support to oil prices. Of course, there will still be bearish news for oil prices in the coming weeks, such as weak corporate earnings, a weaker outlook and possible layoff announcements. If this materializes as feared, then after the recent surge, oil prices may fall facing downward pressure.
The outlook for crude oil is expected to improve materially this year, with consumption in China set to jump by as much as 1 million bpd from recent lows in the next six months once the outbreak in China normalizes, with demand expected to rise further by the end of the year 500,000 bpd, and by then, the worst demand weakness in the West should also be over.
At the same time, the supply side may also help tighten the oil market to support oil prices. Saudi Arabia and its allies may adjust the size of production this year to match the slowdown in demand growth later this year. Production cuts amid a rebound. Therefore, we judge that the oil price of 100 US dollars per barrel can be achieved in the second half of 2023.
There will be a lot of fundamental news about energy this week. First of all, due to the holiday in the United States, today’s trading may be a bit light; on Tuesday, OPEC will release its monthly oil market report, while China will also release industrial production data for December, which will include crude oil production and refining processing; The Energy Agency (IEA) will release its monthly oil market report on Wednesday. Due to today’s public holiday in the United States, API and EIA inventory data will be delayed by one day.
Geojit Financial Services
A sharp rebound in oil prices is unlikely
Oil demand is expected to increase in 2023. Potential economic growth from the reopening of China is expected to generate more demand for crude oil this year. In addition to lower Russian supply, OPEC and its allies have pledged to cut production sharply amid a deteriorating economic outlook, which will also provide upside potential for the commodity. Meanwhile, a sharp rebound in oil prices is unlikely amid global economic uncertainty and growing growth risks in major economies. Looking ahead, prices are expected to recover modestly initially, but may consolidate later. WTI crude oil prices are expected to trade in a range of $62-$94 a barrel, with a break either way suggesting a new direction.
Oil prices on an upward trajectory
Oil prices are on an upward trajectory as trading volumes pick up as the market now expects the Fed to raise interest rates by just 25 basis points in February amid expectations for record-breaking demand for crude oil in China and U.S. CPI data that suggests inflation may be slowing. The Bloomberg survey estimates that demand will rise by an average of 800,000 bpd this year, and I think Chinese demand will be three times the average expected demand, which will keep oil prices strong in the spring. In addition, the policies implemented by the Biden administration have led to massive underinvestment in crude oil and natural gas. Now that the strategic petroleum reserve is depleted, the decline in global inventories in the next few weeks will start to show the lack of strategic petroleum. And Biden’s abuse of the Strategic Petroleum Reserve could lead to a spike in crude oil and gasoline prices in the spring. When the market’s stable supply is suddenly interrupted, oil prices will rebound.