Oil Prices Soar as China Lifts COVID-19 Restrictions, Boosting Fuel Demand

Oil prices rose to their highest levels since early December on Wednesday, as the lifting of China’s strict COVID-19 restrictions led to optimism of a recovery in fuel demand in the world’s top oil importer. Brent crude futures were up 1.84% to $87.50 a barrel and U.S. West Texas Intermediate (WTI) crude futures rose 2.28% to $82.01. Both were at their highest since early December.

Although China’s economic growth slowed sharply to 3% in 2022, missing the official target of “around 5.5%,” it still beat analysts’ forecasts after China began rolling back its zero-COVID policy in early December. Analysts polled by Reuters expect growth to rebound to 4.9% this year.

The International Energy Agency (IEA) said on Wednesday that the lifting of COVID-19 restrictions in China is set to boost global oil demand to a record high this year. The IEA report also noted that price cap sanctions on Russia could dent supply. The Organization of the Petroleum Exporting Countries (OPEC) also projected that Chinese oil demand will grow by 510,000 barrels per day (bpd) this year after contracting for the first time in years in 2022 because of COVID containment measures. However, OPEC kept its 2023 global demand growth forecast unchanged.

On the supply side, oil output from top shale regions in the United States is expected to rise by about 77,300 bpd to a record 9.38 million bpd in February, according to the U.S. Energy Information Administration.

Indonesia also announced on Wednesday that it missed oil and gas production targets last year, but expects long-stalled gas projects, such as the Indonesia Deepwater Development (IDD) and Masela gas blocks, to resume development soon. Meanwhile, U.S. oil giant Chevron is close to reaching a deal with an investor to transfer its stake and operatorship of IDD, and Indonesian state energy company Pertamina is negotiating to take over Shell’s partnership in the Masela gas project.

In summary, the lifting of COVID-19 restrictions in China is expected to lead to a recovery in fuel demand and boost global oil demand to a record high this year. However, it remains to be seen how China’s economic growth and the supply side of the oil market will affect prices in the long term.

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