Oil Extends Comeback As Markets Anticipate Demand Growth in 2023

Oil prices extended gains for a second straight day on Tuesday as investors bet that a Chinese reopening, U.S. buying, and a potentially colder-than-anticipated winter will push a demand recovery through 2023, despite heightened fears of a worldwide recession.

As China began easing COVID-related restrictions on travel and economic activities, optimism for China's reopening was the primary catalyst for the current crude oil recovery rise.

However, this was mostly tempered by an increase in illnesses, which analysts warn could postpone the country's full reopening.

Nonetheless, a number of Chinese government officials, including President Xi Jinping, have committed to boost economic growth from epidemic lows and substantially increase transport demand.

Early road and aviation traffic indicators from the country indicate that transport demand has rebounded strongly in the first few weeks since the reopening, which bodes well for the future need for petroleum.

Brent oil futures traded in London increased 0.7% to $80.66 per barrel by 21:40 ET, while West Texas Intermediate crude futures increased 0.9% to $76.30 per barrel (02:40 GMT). The value of both contracts has rebounded significantly from a one-year low reached earlier this month.

In addition to President Joe Biden's pledge to begin refilling the U.S. Strategic Petroleum Reserve the next year, the potential of rising demand in 2023 helped markets. Beginning in February, the U.S. will purchase 3 million barrels to replenish the Strategic Petroleum Reserve.

Indications of a colder-than-anticipated winter have increased hopes that crude oil demand will increase in the near future, particularly for heating purposes. Recent projections from the International Energy Agency also indicate that petroleum demand will remain high in 2023.

Nonetheless, mounting predictions of a recession in 2023 have recently clouded the picture for crude markets. Analysts have cautioned that rising interest rates and high inflation could further depress economic activity in the coming months, thereby weighing on crude oil demand.

Fears of such a scenario have impacted hard on oil prices in recent weeks, particularly after several major central banks stated that they will continue to raise interest rates despite the worsening economic outlook.

As a result of the fact that a stronger dollar makes dollar-priced commodities more expensive, the currency's rebound also curbed oil price advances.