Crude Oil Price Update – IEA Sees Recovering China Demand as Saudi’s Raise Prices to Asia

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are sharply higher on Tuesday. The move is being fueled by optimism about recovering demand in China, and concerns over supply shortages following the shutdown of a major export terminal after an earthquake in Turkey.

At 12:44 GMT, April WTI crude oil is trading $76.22, up $1.75 or +2.35% and April Brent is at $82.77, up $1.78 or +2.20%. On Monday, the United States Oil Fund ETF (USO) settled at $65.47, up $1.07 or +1.66%.

China’s Oil Demand Bounce May Push Producers to Reconsider Output, IEA Says

Oil producers may have to reconsider their output polices following a demand recovery in China, the world’s second-largest oil consumer, the International Energy Agency’s Executive Director Fatih Birol said on Sunday.

Demand in China, the world’s largest crude importer and No. 2 buyer of liquefied natural gas, has become the biggest uncertain factor in global oil and gas markets in 2023 as investors bet on the speed of its recovery after Beijing lifted COVID restrictions in December, according to Reuters.

“We expect about half of the growth in global oil demand this year will come from China,” Birol told Reuters on the sidelines of the India Energy Week conference.

He added that China’s jet fuel demand is exploding, putting upward pressure on demand.

“If demand goes up very strongly, if the Chinese economy rebounds, then there will be a need, in my view, for the OPEC+ countries to look at their (output) policies,” Birol said.

Saudi Arabia Raises Price for March Arab Light Crude to Asia

Saudi Arabia, the world’s top oil exporter, raised prices for its flagship crude for Asian buyers for the first time in six months amid an expectation of oil demand recovery, especially in China, Reuters reported.

The official selling price (OSP) for March-loading Arab Light to Asia was raised by 20 cents a barrel from February to $2.00 a barrel over Oman/Dubai quotes, Aramco said late Monday, beating a market forecast of a 30 cent cut.

“The OSP is quite unexpected. I think it indicates that Saudi is bullish on oil demand,” said a Singapore-based oil trader.

Turkey’s Ceyhan Oil Terminal, Iraq’s KRG Pipeline Halted After Quake

A massive earthquake that stuck Turkey and Syria on Monday halted operations at Turkey’s major oil hub in Ceyhan and stopped key crude oil flows from Iraq and Azerbaijan, officials said.

The Tribeca shipping agency said in a notice that the BTC terminal at Ceyhan that exports Azeri crude oil will be closed through Wednesday pending damage assessments. Azerbaijan uses the Turkish port of Ceyhan as its main crude export hub, with a flow of about 650,000 barrels per day (bpd).

Short-Term Outlook

The current bullish events affect both supply and demand, helping to create a nearly perfect situation for a near-term rally. Furthermore, these are the types of events that hedge funds and speculators like to take advantage of, which could create volatile upside price action.

Traders should note that gains could be limited today if Fed Chairman Jerome Powell delivers a hawkish message at his 17:00 GMT speech. This would not only drive interest rates higher but also the greenback that could weigh on foreign demand for dollar-denominated crude oil.