Oil steadies after slump as IEA, Kuwait flag rising China demand

Oil steadied after sinking to the lowest close in about a month as traders took stock of the outlook for demand in China and the latest sanctions on Russian energy flows came into effect.

West Texas Intermediate held above $73 a barrel after losing more than 3% on Friday as a bumper US jobs report bolstered the case for more rate rises from the Federal Reserve. International Energy Agency Executive Director Fatih Birol said at the weekend that China could be poised for a stronger-than-anticipated rebound that’ll boost demand for crude. That positive view was echoed by the chief executive officer of Kuwait Petroleum Corp. on Monday.

A European ban on seaborne imports of Russian oil products in response to the war in Ukraine came into effect on Sunday. The measure is coupled with a price cap similar to one in effect for crude, and designed to curb Moscow’s revenues while enabling products to flow to third countries.

Oil has endured a bumpy start to 2023 even as China’s ditching of Covid Zero fanned a wave of speculation that the world’s largest crude importer will ramp up imports. At the same time, the Organization of Petroleum Exporting Countries and its allies have opted to maintain supply cuts, with Prince Abdulaziz bin Salman, Saudi Arabia’s energy minister, saying at the weekend that the kingdom will remain cautious about raising supply.

“Oil is finding support,” said Zhou Mi, an analyst at the Chaos Research Institute in Shanghai, citing China’s post-Covid recovery. “However, headwinds remain as Russian supply is withstanding sanctions — on both the crude and products front — so far. We think the market will trade sideways short term.”

Demand in China is rising strongly following the ending of coronavirus lockdowns, Sheikh Nawaf Al-Sabah, head of Kuwait Petroleum, told Bloomberg Television in Bangalore, India. “With the opening up, we’re seeing an increase in demand that is sustainable. This is not a dead-cat bounce.”

The ever-more-complex web of sanctions on Russia’s crude has reshaped the global oil market as Moscow seeks alternative outlets. Countries such as India have benefited, both by gorging on cheap Russian oil for local use, and refining a record amount of the nation’s crude into fuels for export to the West.

Despite crude’s tumble on Friday, Brent’s prompt spread — the difference between its two nearest contracts — remains in backwardation, a bullish pattern. The gap was 21 cents a barrel, compared with 18 cents in the opposite contango structure a month ago.

Goldman Sachs Group Inc., meanwhile, reiterated a forecast that oil prices are set to top $100 a barrel this year. With sanctions likely to cause Russian oil exports to drop and Chinese demand expected to recover, crude will climb, analyst Jeff Currie said in Riyadh, Saudi Arabia, on Sunday.

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