- There are expectations of a strong recovery in gasoline consumption in top oil consumer China.
- China will make up over half of the increase in global oil consumption in 2023.
- US crude oil inventories went up by 16.3 million barrels last week.
Oil prices increased in Thursday’s Asian session after facing a retreat on Wednesday. The rise in oil prices was caused by expectations of a strong gasoline consumption recovery in China, the world’s biggest oil consumer. However, this was not enough to compensate for the losses caused by a stronger dollar and an increase in US crude stockpiles.
Oil demand is expected to expand by 2 million barrels per day this year, up 100,000 barrels per day from last month’s prediction to a record 101.9 million barrels per day, with China accounting for 900,000 barrels per day of the increase.
After loosening its COVID-19 restraints, China will make up over half of the increase in global oil consumption in 2023, according to the International Energy Agency.
The US dollar, which often moves inversely to crude prices, rose due to positive US retail sales data and held onto most of those gains on Thursday.
The Energy Information Administration revealed that US crude oil inventories went up by 16.3 million barrels last week to 471.4 million, the highest level since June 2021. Analysts claimed a data modification that caused the muted reaction in oil prices was mostly to blame for the larger-than-expected build.
Oil prices are rising because of reports of a strong recovery in Chinese demand and the possibility of Russia cutting production. This is happening even though the US’s steadily rising production and swollen inventories, and a general recovery in the US dollar pose risks to oil prices going down.
During the first half of 2023, it looks like the world will have more oil than it needs. However, as demand rises and Russia cuts off some of its supply, the balance may quickly change to a deficit. As the pandemic gets better, there will likely be more air travel, which will increase the need for jet fuel.
In a note, analysts at Commonwealth Bank noted that OPEC+ will not try to increase supply to make up for lower Russian output.
So, it will be up to the US and other non-OPEC oil producers to increase production to make up for the drop in Russian oil production and any slight rise in oil demand worldwide.