Futures Movers: Oil ends higher on China’s reopening, but traders watch for signs of a global recession

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Oil futures settled higher on Tuesday, with U.S. prices up a fourth straight session, finding support as investors continue to monitor China’s reopening and look for signs of a potential global recession.

Price action
  • West Texas Intermediate crude for February delivery CL.1, +0.60% CL00, +0.60% CLG23, +0.60% rose 49 cents, or 0.7%, to settle at $75.12 a barrel on the New York Mercantile Exchange after posting gains over the past three sessions in a row.
  • March Brent crude BRN00, -0.11% BRNH23, -0.11%, the global benchmark, added 45 cents, or 0.6%, to $80.10 a barrel on ICE Futures Europe.
  • Back on Nymex, March gasoline RBH23, +1.42% rose 1.5% to $2.3277 a gallon, while March heating oil HOH23, +1.88% settled at $3.1357 a gallon, up 3.3%.
  • February natural gas NGG23, -8.01% dropped 6.9% to $3.639 per million British thermal units after gaining 5.4% on Monday.
Market drivers

Crude prices continued to find support on expectations for higher demand out of China as the country scraps its COVID-19 restrictions. China’s longstanding COVID curbs had been seen as a weight on energy demand. Optimism around the lifting of the curbs was dented last month as infections in the country surged.

“We are confident that oil prices will climb again once the current wave of COVID infections has peaked in China and economic activity picks up,” said Carsten Fritsch, commodity analyst at Commerzbank, in a note.

Travel activity around the Lunar New Year holiday, which takes place between Jan. 21 and 27, is expected to surge compared with the same period last year, with the main travel period generally 40 days around public holidays, Fritsch noted, with a Chinese official having estimated travel will reach around 70% of the 2019 level.

China has also opened its borders to international travelers again, which should go hand in hand with a recovery in oil demand, Fritsch said.

Still, Stephen Innes, managing partner at SPI Asset Management, warned that oil traders are “unlikely to see the explosive economic reopening that oil bulls had hoped for, with the market ignoring case counts in favor of local Chinese activity data.” Oil prices “should rise tangentially to the increasing mainland mobility pulse,” he said in a market update.

Concerns about the global economic outlook as the Federal Reserve and other major central banks continue to tighten monetary policy in their effort to bring down inflation have also been cited as a weight on crude prices. Fed Chairman Jerome Powell didn’t talk about the U.S. economic outlook or monetary policy in prepared remarks for a panel discussion in Stockholm Tuesday.

But recession fears don’t appear to be a major factor holding crude back, said Innes. “The current global activity data from trains, planes and automobile perspective is too strong to impact oil prices negatively from a recession sentiment perspective,” he said.

Still, “the warmer European weather likely obscures the more pronounced positive shift from China’s borders reopening,” said Innes. The “unseasonable warm spell affects not just Europe, but also the U.S. January warmth is set to have twice the impact of the December cold spell depressing demand for all winter fuels significantly lower.”

Looking ahead, the Energy Information Administration will release its weekly U.S. petroleum supply report Wednesday morning.

On average, analysts expect the report to show a crude supply decline of 500,000 barrels for the week ended Jan. 6, along with inventory gains of 1.3 million barrels for gasoline and 500,000 barrels for distillates, according to a survey conducted by S&P Global Commodity Insights.

Separately, in its monthly Short-term Energy Outlook report issued Tuesday, the EIA said it expects global consumption of liquid fuels, such as gasoline, diesel and jet fuel, to reach a record high next year.

It reduced its 2023 forecasts for U.S. and global benchmark oil prices and also issued 2024 forecasts of $71.57 for WTI and $77.57 for Brent.

This article was originally published by Marketwatch.com. Read the original article here.

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