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Futures Movers: Oil futures score a second weekly gain on optimism over China demand

Oil futures settled higher on Friday, with major benchmarks scoring a second winning week on optimism over Chinese crude demand as the country lifts its COVID-19 restrictions.

Price action

West Texas Intermediate crude for February delivery
CL.1,
+1.33%

CLG23,
+1.33%

climbed by 98 cents, or 1.2%, to end at $81.31 a barrel on the New York Mercantile Exchange. The contract, which expired at the end of the session, finished 1.8% higher for the week. March WTI
CL00,
+1.46%

CLH23,
+1.46%
,
the most actively traded contract, added $1.03, or 1.3%, to settle at $81.64 a barrel.

March Brent crude
BRN00,
+0.11%

BRNH23,
+0.11%
,
the global benchmark, $1.47, or 1.7%, to settle at $87.63 a barrel on ICE Futures Europe, ending up 2.8% for the week.

Back on Nymex, February gasoline
RBG23,
+1.77%

rose 1.9% to $2.6454 a gallon, adding nearly 4.5% for the week, while February heating oil
HOG23,
+2.89%

was up 1.5% at $3.4253 a gallon, posting a weekly rise of 6.5%.

February natural gas
NGG23,
-5.16%

fell 3.1% to $3.174 per million British thermal units and logged a weekly loss of 7.2%

Market drivers

The early days of 2023 have seen “both oil bears and bulls put on a robust fight, but the tide seems to be turning in favor of the bulls, as demand creeps up while supply growth remains constrained,” said Manish Raj, managing director at Velandera Energy Partners.

“The talk of the town among oil traders are the usual suspects: China, Russia and the [Federal Reserve],” he told MarketWatch. “Unless the Fed spooks the market with another 50-bps rate increase, we expect both the Chinese reopening and the Russian sanctions to support oil prices.”

Crude stumbled in the first week of 2023 but subsequently found its footing, lifted by expectations that China’s lifting of COVID-19 restrictions will lead to an increase in demand for crude from one of the world’s largest energy consumers. China’s COVID curbs were seen as a weight on demand, helping to keep a lid on prices.

“As China embarks on a week of New Year festivities, there will also be no positive impetus from this direction, meaning that prices are likely to trend sideways,” said Barbara Lambrecht, commodity analyst at Commerzbank, in a note.

The Chinese government expects over 2.1 billion journeys to be made during a 40-day travel period around New Year’s Day, which falls on Sunday.

See: China’s Lunar New Year travel rush begins after COVID-19 restrictions are lifted

Meanwhile, the European Union’s ban on imports of Russia oil products is set to kick in on Feb. 5, and it looks to become a “major headache for Russia,” said Raj.

“Refined products have a short shelf life so they cannot be shipped in months long journeys to the far East to skirt sanctions,” he said. ” As a result, Russia has no choice but to curtail refined products shipments, leaving it with more crude oil to export.” 

Fears of a U.S. recession and a global economic downturn, however, were seen as a cap on oil prices. Investors this week saw a mixed bag of economic data, including signs of further weakness in the U.S. manufacturing sector, a larger-than-expected drop in December retail sales, a further slowdown in producer prices and a surprising drop in first-time unemployment claims.

Also see: Baker Hughes data show a decline in active U.S. oil-drilling rigs

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