Oil markets receive an early Christmas gift as IEA, OPEC forecast demand uptick next year

Front-month ICE Brent has gained $1.56/bbl in the past day, to $82.29/bbl at 09.00 GMT.

PHOTO: Oil prices are expected to rally again in the second quarter of 2023, according to the IEA. Getty Images

Upward pressure:

A green shoot of demand recovery is driving Brent prices higher. OPEC and the International Energy Agency (IEA) have forecast increased global oil demand next year, led by a potential upside from China. In addition, the IEA sees another oil price rally as the market expects a tightening of supply in the second quarter of 2023.

Oil markets are heavily driven by China, which is the world's top importer of oil. China's decision to relax its previously relentless zero-Covid policy almost two years after the pandemic outbreak has spurred optimism over its economic growth prospects next year.

“As normalisation unfolds in the spring, economy will rebound meaningfully from the second half of next year. The growth will be led by private consumption, where pent-up demand will be unleashed once the nation fully reopens,” says Morgan Stanley’s chief China economist Robin Xing.

The forecasts also indicate that the looming economic recessions in the US and Europe won't affect crude oil demand as much as initially forecast.

Bernstein analyst Oswald Clint has told CNBC that the current market setup is "supportive" of Brent reaching triple-digits again. “The recent volatility presents a good entry point ahead. Balances may be looser for the next quarter, but by second quarter, a new price rally will be upon us,” he says.

TC Energy has restarted a minor segment of the Keystone pipeline between the US and Canada after a week of closure, but it is not yet certain when it will fullyrestart still. A leak of more than 14,000 bbls of oil – the largest in nearly a decade in the US – in rural Kansas triggered the closure of the pipeline.

Downward pressure:

Commercial US crude oil stockpiles increased by more than 10 million bbls in the week to 9 December, according to official data by the Energy Information Administration. It superseded the American Petroleum Institute's (API) earlier projection of a 7.8 million bbls rise.

The World Bank and International Monetary Fund (IMF) have cautioned against a worsening global outlook.

Bloomberg has reported that IMF's managing director Kristalina Georgieva sees further downgrades to global growth while the World Bank's chief executive David Malpass is “deeply concerned that the world is at risk of a global recession.”

By Konica Bhatt

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