Positive outlook for Chinese demand lifts Brent futures

Front-month ICE Brent has gained by $1.47/bbl on the day from Friday, to $82.39/bbl at 09.00 GMT.

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Upward pressure

Optimism around China's oil demand has prompted an increased buying activity in Brent futures. “The latest positioning data shows that speculators increased their net long in ICE Brent by 12,291 lots over the last reporting week to 298,291 lots as of last Tuesday. This move was driven exclusively by fresh buying, rather than short covering,” ING commodity strategists Warren Patterson and Ewa Manthey say.

"Oil prices could rise as high as $107 a barrel by the end of the year from about $84 at present, depending on how OPEC responds to emerging market conditions," says a new research report from Goldman Sachs. It predicts that a rise in Chinese oil demand and an uptick in non-OPEC production will lead the OPEC alliance to increase production by 1 million b/d at its June meeting.

Saudi Aramco's chief executive Amin Nasser has maintained a "cautiously optimistic" stance for the near term. He says rising oil demand in China, a pickup in jet fuel demand and “very limited spare capacity” of 2 million b/d will keep the market "tightly balanced", Reuters reports.

Downward pressure:

“Despite bullish prepositioning ahead of the China data dump, with [the US consumer price index] CPI in the market line of sight, the perceived [US Federal Reserve] Fed response to high inflation could limit gains unless there is a downside surprise in print,” Stephen Innes, managing partner at SPI Asset Management has said.

The EU has agreed in theory to phase out its use of fossil fuels “well ahead of 2050”. The block is expected to consume 13.65 million b/d of crude oil this year, according to OPEC's February outlook. EU countries' commitment to phase out fossil fuels would gradually reduce their oil demand in the future.

By Konica Bhatt

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