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Futures Movers: Oil ends on a mixed note, but remains buoyed by optimism over China demand

Oil futures end Monday on a mixed note, with U.S. prices little changed and global benchmark crude settling higher on continued optimism over energy demand from China.

Price action

West Texas Intermediate crude for March delivery
CL00,
-0.10%

CL.1,
-0.10%

CLH23,
-0.10%

fell 2 cents to settle at $81.62 a barrel on the New York Mercantile Exchange on the contract’s first full session as a front-month contract. The former front-month February contract finished Friday at the highest since Nov. 17, according to Dow Jones Market Data.

March Brent crude
BRN00,
-0.18%

BRNH23,
-0.18%
,
the global benchmark, gained 56 cents, or 0.6%, to $88.19 a barrel on ICE Futures Europe, the highest front-month finish since Nov. 22.

Back on Nymex, February gasoline
RBG23,
+1.64%

rose 1.9% to $2.6965 a gallon, while February heating oil
HOG23,
+2.09%

added 2.4% at $3.5509 a gallon.

February natural gas
NGG23,
+7.72%

added 8.6% to $3.447 per million British thermal units, ahead of its expiration on Friday. March natural gas
NG00,
+4.91%

NGH23,
+4.91%
,
the most actively traded contract, tacked on 6.1% at $3.222 per million BTUs.

Market drivers

Oil prices on Monday had been following through to the upside after a second straight weekly gain, but WTI prices moved down in roughly the last half hour of trading to end pennies lower for the session.

Oil bulls have been “drawing strength from rising demand hopes as China’s economy re-opens, while a softer dollar seems to be supporting upside gains,” said Lukman Otunuga, manager, market analysis at FXTM. U.S. benchmark oil prices may push higher “not only because of China’s improving outlook, but expectations around the [Federal Reserve] toning down its pace of rate hikes.”

When factoring the pending restrictions on Russian oil that are due to commence in February, “the dynamics remain in favor of bulls, with $85 acting as the next key level of interest,” he told MarketWatch.

Meanwhile, China’s reopening is the “game changer for oil markets, and oil prices will likely fly, especially if international travel continues to open up,” said Stephen Innes, managing director at SPI Asset Management, in a note. Based on early Monday trading, traders may “have yet to fully price [in] the Chinese consumer boost at the pump or the expected downturn in Russian production.”

A price cap on Russian oil products agreed to by the U.S. and its allies is set to take effect on Feb. 5, alongside an existing cap on Russian crude oil prices. The group is due to review the cap on crude prices in March, the U.S. Treasury Department said Friday.

A European Union ban on Russian oil products is also set to kick in on Feb. 5 and that’s going to leave a “huge supply gap for diesel,” wrote Robert Yawger, director of energy futures at Mizuho Securities USA, in a note. “Russia has been the EU’s largest supplier of diesel, accounting for almost half of total imports in 2022.”

As the Feb. 5 deadline nears, Europe has ramped up Russian diesel imports, which are up 47% since September to 669,000 barrels per day in December, he said. “The halt in Russian imports may remove more than 663,000 bpd a day of diesel.” 

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