SINGAPORE: Oil prices rose on Monday amid optimism about demand recovery in China, concerns that underinvestment will limit future oil supply and as major producers maintain output restrictions.
Brent crude rose 70 cents, or 0.8 percent, to $83.70 a barrel at 0720 GMT. US West Texas Intermediate (WTI) crude for March, which ends Tuesday, was $76.89 a barrel, up 55 cents or 0.7 percent. April’s more active contract rose 0.8 percent to $77.14.
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 up slightly this morning after selling off on recent hawkish Fed commentary following stronger-than-expected CPI and PPI data released in the US,” said Baden Moore, head of commodities research at National Australia Bank.
While last week’s announcement that the US will sell 26 million barrels of crude oil from its Strategic Petroleum Reserves is putting some downward pressure on the market, global supply appears to be “stalled” from the previous corresponding period, taking into account with production cuts by Russia and OPEC+, Moore added.
He was referring to the agreement of the Organization of the Petroleum Exporting Countries (OPEC) and allies, a group known as OPEC+, last October to cut oil production targets by 2 million barrels per day (bpd) through the end of 2023.
Russia plans to cut oil production by 500,000 barrels per day in March, or about 5 percent of production, after the West imposed price caps on Russian oil and oil products.
“In that context, we continue to see China reopening and a rebound in China and global demand for jets to increase upside risks to prices,” Moore said. China is the world’s largest importer of crude oil.
Analysts expect Chinese oil imports to reach a record high in 2023 due to increased demand for transportation fuel and the arrival of new refineries.
China has become the largest buyer of Russian crude oil along with India following the European Union embargo.
At the same time, future oil supply shortages are likely to push prices to $100 a barrel by the end of the year, Goldman Sachs analysts said in a Feb. 19 note.
Prices will rise “as the market rolls back into deficit with underinvestment, shale constraints and OPEC discipline to ensure supply does not meet demand,” they wrote.
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