Oil Prices Rally As Confidence In A Global Economic Rebound Grows

Yves here. Wellie, if you read our earlier post on sentiment at Davos, you would have noticed that the Financial Times decided to flog an IMF economic upgrade very hard as a proof of rising animal spirits among the super rich. The Wall Street Journal, which actually talked to attendees, had a much more downbeat take.

Nevertheless, speculators are running with the upbeat IMF/Financial Times spin…even though the World Bank had just slashed its 2023 forecast to just above economic stall speed.

In fairness, a related OilPrice story contends that the Saudis are also bullish on oil prices based on signals they are getting from China. Mind you, we have said that China rebounding would have a big impact on oil prices and growth generally. Your humble blogger is discounting optimistic talk from China for the moment. The Xi government has to depict its abrupt about turn on Zero Covid as a big success until it actually does succeed or cannot be denied to have been a belly flop, or worse.

By Tsvetana Paraskova, a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews. Originally published at OilPrice

  • Oil prices extended Tuesday’s rally early on Wednesday morning, climbing by more than 1% in early European trade.
  • Bullish sentiment is building as forecasts from OPEC and the World Economic Summit suggest major economies may avoid recession.
  • While oil prices are rallying, analysts have warned that the rally might soon meet significant technical resistance.

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.

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5 comments

  1. chris

    I’m surprised none of our glorious elites have figured out how to write Maidan in Mandarin…

    This is madness. Sheer madness. Rising interest rates with increasing fuel costs and we’re still sanctioning Russia, but people are optimistic about China increasing its petroleum demand??? Why does it seem as if no one is even contemplating the real possibility that Russia wins in Ukraine, we get a hot summer, China rebounds, oil demand spikes, and then the cost of food necessarily inflates? What would that do to economic forecasts about growth?

    Reply
    1. cnchal

      > . . . China rebounds

      I have doubts about that. Let er rip has consequences and my thinking is that the glorious supply chain almost everyone assumes is going back to the way it was is mistaken.

      Continual reinfections can’t be avoided in the big ant hills of China and after the local misery index goes vertical it will flatten out at a permanently high plateau, throwing a big covid anvil into the workx.

      Davos Man happy talk is them talking their book.

      Reply
  2. Michael.j

    My initial reaction is that WEF players are planning to trade in renminbi.

    Given the US is importing Russian diesel from India and China is selling LNG to Europe, I’m guessing the players have adjusted to the new economics.

    It’s likely more sunny when you can freely choose which side of the street you wish to walk.

    Reply
  3. Rob

    This did not have a long shelf life. Volatility! Maybe by tomorrow afternoon wti will be back above 80 or maybe by Friday it will retest the low 70’s…..

    Question Does a sustained very low interest rate environment like the one we recently exited indicate a possible future that does not possess much value? I.E. discounting a future where the currency or economy or opportunities may be less valuable than the current one?
    Kinda like the sha la la la live for today song?

    Reply

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