Front-month ICE Brent was up $0.40/bbl on Friday to $83.93/bbl at 0900 GMT.
Upward pressure:
The International Energy Agency (IEA) has forecast China’s oil demand to grow by more than 900,000 b/d this year, and Goldman Sachs commodity strategists believe it will grow by as much as 1 million b/d. /d. That could push Brent up by “roughly $15/bbl,” Goldman Sachs said.
“Global oil supply looks set to exceed demand in the first half of 2023, but the balance could quickly shift to a deficit as demand recovers and some Russian production is shut down,” the IEA says. It predicts Saudi Arabia and the UAE will have a combined “thin spare capacity cushion” of 3.4 million b/d despite seeing record output this year.
The IEA’s warning echoes concerns expressed by Saudi Aramco’s chief executive that existing “low global spare capacity” will shrink as China-led global demand rises.
“A big upside risk [oil] Prices remain China and its recovery from the transition to living with Covid,” says Craig Erlam, senior market analyst at OANDA. He adds that the Russian production cut “is likely to double later in the year “.
Downward pressure:
On the other hand, the IEA expects non-OPEC+ producers to step in to fill the supply gap left by Russia and OPEC. “For the year as a whole, global oil supply is forecast to expand by 1.2 million b/d, led by the United States, Brazil, Norway, Canada and Guyana, all set to pump at record rates”.
The tug-of-war between inflation and interest rate hikes by the US Federal Reserve (Fed) remains a metaphorical chink in Brent’s armour. The Fed is expected to continue raising interest rates to curb inflation. Rising interest rates may increase borrowing costs, which may lead to a decrease in demand for Brent crude.
Core inflation readings in the US “smashed hopes of an orderly meltdown in inflation,” writes Stephen Innes, managing partner at SPI Asset Management: “A ferocious recovery in January retail sales hijacked thoughts of a significant economic cooling”. He adds that the Fed is not expected to cut interest rates until there is a “risk to growth.”
Source: Motor
