Dubai crude rebounds 8% on week, optimism on China demand surge
Quantum Commodity Intelligence - Middle East benchmark Dubai crude rebounded strongly in the second week of 2023 as expectations pivoted towards a speedy recovery in Chinese demand after Beijing lifted Covid restrictions.
Quantum assessed front-month Dubai cash for March delivery at $81.05/b the week ending 13 January, versus $75.15/b for the same contract last Friday, up $7.85/b and more than countering the previous week's 4% drop.
The reversal in sentiment came largely with the ramp up in Chinese mobility levels as fears over mass casualties subsided with Covid cases now falling in most cities.
Goldman Sachs maintained its bullish view for crude prices this year, arguing China's rapid move to reopen would counter demand destruction caused by an unseasonably warm winter.
A fast reopening of China's economy adds a potential $5/b to crude forecasts said Goldman, outweighing the loss of around 1.5 million bpd of oil demand because of mild weather this winter.
Morgan Stanley also expects oil markets to stage a strong recovery this year with crude set to reach the $100-$110/b range by the second half of the year, buoyed by a resurgent China.
On Friday, SocGen said Chinese crude oil demand could reach a fresh record high of 17.5 million bpd by the end of this year after Beijing eased Covid restrictions, pushing Brent to $110/b.
Optimism over China was enough to counter last week's massive increase in US crude oil inventories, which ballooned by almost 19 million barrels as a result of post-storm refinery outages and a rise in imports.
Markets were also given a lift as US inflation slowed to 6.5% in December, marking the sixth straight monthly deceleration since the mid-2022 peak.
Physical
However, bullish sentiment on a macro level has yet to transfer into physical oil markets as premiums for March-loading cargoes medium sour grades remain sluggish, with Oman, Upper Zakum and Al Shaheen all valued at the Dubai swaps +$1-$1.20/b range.
The prompt Dubai market structure also remained under pressure as the M1/M3 Dubai spread (Mar23/May23) was little changed on the week at around $1.15/b, although the one-year curve improved by around $1.50/b to $5.50/b.
ICE Brent futures for Mar23 were trading at $84.20/b at the Asia close Friday (1630 Singapore), up $5.38/b on the week, or 6.8%, while the Mar23 Brent/Dubai cash spread narrowed by $0.50/b to around $3.15/b.
DME Oman futures at 1630 Singapore were 7.86% higher at $81.09/b for the Mar23 contract, with Oman largely tracking cash Dubai.
Light sweet Murban crude futures trading on Abu Dhabi's IFAD Exchange gained 7.78% to close the Singapore week at $83.11/b for the Mar23 contract, with lighter barrels in Asia finding support from higher distillate cracks.
