SINGAPORE – Oil prices rose on Monday on optimism about China’s demand recovery, fears that underinvestment will limit future oil supplies and as major producers maintain their production limits.
Brent crude was up 47 cents, or 0.6 percent, to $83.47 a barrel by 0445 GMT. US West Texas Intermediate (WTI) crude for March, which expires on Tuesday, was at $76.78 a barrel, up 44 cents, or 0.6 percent. The more active April contract rose 0.5 percent to $76.90.
Benchmarks fell $2 a barrel on Friday and closed about 4 percent lower last week after the United States reported higher crude oil and gasoline inventories.
“Brent and WTI prices are slightly higher this morning after selling off on the recent hawkish Fed comments following the release of stronger-than-expected US CPI and PPI data,” said Baden Moore, head of commodity research at the National Australia Bank.
While last week’s announcement that the US would sell 26 million barrels of crude from its strategic oil reserves put some pressure on the market, after accounting for Russia’s production cuts, global supply appears to be “flat to down” compared to the same period last year and OPEC+, Moore added.
He was referring to the agreement by the Organization of the Petroleum Exporting Countries (OPEC) and its allies, a group known as OPEC+, last October to cut oil production targets by 2 million barrels per day (bpd) by the end of 2023.
Russia plans to cut oil production by 500,000 bpd, or about 5 percent of production, in March after the West imposed price caps on Russian oil and oil products.
“In this context, we continue to see China reopening and a rebound in China and global jet demand to increase the upside risk for prices,” Moore said. China is the world’s largest crude oil importer.
Analysts expect China’s oil imports to hit an all-time high in 2023 on increased demand for transportation fuel and new refineries coming online.
China, along with India, has become the top buyers of Russian crude oil following the European Union embargo.
At the same time, future oil supply shortages are likely to push prices towards $100 a barrel by the end of the year, analysts at Goldman Sachs said in a Feb. 19 note.
Prices will rise “as the market returns to deficit with underinvestment, shale restrictions and OPEC discipline ensuring supply does not meet demand,” they wrote.