Despite anticipated weakness in the global economy and the possibility of additional interest rate hikes, oil prices experienced an increase on Friday and recorded a weekly gain.

This can be attributed to the elevated demand from China and the supply cuts implemented by OPEC+, which contributed to the upward movement in prices.

By close of Friday, Brent crude gained 94 cents to settle at $76.61 a barrel. U.S. West Texas Intermediate (WTI) crude rose $1.16 to $71.78. Brent posted a weekly gain of 2.4% and WTI rose 2.3%.

China’s refinery throughput rose in May to its second-highest total on record and Kuwait Petroleum Corp’s CEO expects Chinese demand to keep climbing during the second half.

Recent months have seen notable growth in both the volume of imports and refinery throughput in China’s oil market. This positive trend has led to an optimistic perspective that China’s shift away from its zero-COVID policy will contribute to increased fuel consumption.
Further supporting the rally for crude are the voluntary output cuts implemented in May by OPEC and its allies, plus additional cuts by Saudi Arabia in July.

In its monthly oil market report released on June 14, the International Energy Agency (IEA) revised its projection for global oil demand growth in 2023, increasing it by 200,000 barrels per day (b/d) to reach a total of 2.4 million b/d. The IEA specifically emphasised the resurgence of China’s oil demand as a contributing factor, leading them to raise their annual demand estimate for China in 2023.

Looking Ahead

The oil markets are experiencing significant volatility as they balance bullish and bearish factors, including higher U.S. crude production, interest rate hikes and the potential resumption of oil exports from Iran.

The Bank of England is set to raise interest rates by a quarter of a percentage point this Thursday. The European Central Bank lifted rates to a 22-year high on last Thursday and the U.S. Federal Reserve signaled at least a half of a percentage point increase by year-end.

China is contemplating stimulus measures to boost its economy and support its position as the world’s second-largest economy and importer of crude oil.

This is off the back of major banks reducing their 2023 GDP growth forecasts for China due to faltering post-COVID recovery seen in May data.

Brent crude was down 78 cents, or 1%, to trade at $75.83 a barrel by 0655 GMT, after falling as much as $1.27 to $75.34.