Oil futures: Crude resumes upwards trend, Brent tops $86/b

Quantum Commodity Intelligence - Crude oil futures Thursday resumed the upwards trend after shrugging off earlier weakness, with bullishness on China reopening and the demand recovery outweighing recessionary fears.

March ICE Brent futures were trading at $86.67/b (1725 GMT), compared to Wednesday's settle of $84.98/b, having peaked at a yearly high $87.85/b on Tuesday.

At the same time, Mar23 NYMEX WTI was trading $81.32/b versus Wednesday's settle of $79.80/b, while Feb23 was trading at $81.03/b heading into the expiry.  

Oil markets earlier came under pressure after data from the American Petroleum Institute released late Wednesday revealed that US commercial crude inventories grew by 7.6 million barrels last week, which came on top of a build of 14.9 million barrels calculated by the API in the previous week.

Gasoline inventories were up 2.8 million barrels, although distillates stocks eased by 1.8 million barrels.

This was followed up by EIA figures which showed US crude stocks grew by over 8 million barrels after the previous-week's  19 million barrels build, briefly jolting prices lower before the rally quickly resumed.

Demand

Prices reacted positively to this week's report from the IEA forecasting global oil demand is set to rise 1.9 million bpd this year to a record 101.7 million bpd, with nearly half the gain attributable to China's relaxation of strict Covid measures.

Jet fuel will account for most of the rest at around 840,000 bpd of additional demand this year, the IEA said, as a well-supplied oil market at the start of 2023 could quickly tighten as sanctions hit Russian exports.

"Two wild cards dominate the 2023 oil market outlook: Russia and China," the IEA said.

Meanwhile, Saudi Aramco CEO Amin Nasser fears the world won't have enough spare capacity to deal with additional demand.

"For crude oil, we are in a situation where there is a spare capacity that is helping to mitigate interruptions," Nasser told CNBC at the World Economic Forum in Davos.

"However, I am not so sure about the mid-to-long term because as the spare capacity erodes, we will not be having the capability to mitigate any short- or long-term interruptions like what happened with the Russia-Ukraine crisis."

While he said Aramco is working on building additional production capacity, "I don't think it is enough investment to bring additional capacity that will be needed to supply the market,

"Think about it this way," Nasser said, "Today we have around 2 million barrels of spare capacity. The aviation industry is 1 million barrels below pre-Covid levels. As [the] aviation industry picks up in 2023-24, that's an additional 1 million barrels. [Consider] China opening up and that will really add a lot to the demand side."

Markets had been in a strong upwards trajectory for the past week but sentiment took a knock after the US Federal Reserve said industrial production fell for a second month in a row in December, as lower factory output indicated manufacturers were reducing activity.

Additionally, the New York branch of the Fed said earlier this week that the NY Fed Manufacturing survey posted a -32.9 reading for December, versus a forecast of -8.6% and -11.20 for November.