Oil prices edged higher on Thursday as the global demand outlook improved, with WTI price touching $81.6 per barrel. If the WTI price declines, it may encounter support near $78.1 per barrel, while resistance may be found near $82.3 per barrel.
US GDP data on Thursday were optimistic about the state of the US economy-boosting oil demand expectations. Advanced quarterly GDP released on Thursday revealed that the US economy is expanding at a higher rate than anticipated. US GDP for Q4 of 2022 grew by 2.9% against expectations of a 2.6% growth. The US is likely headed for an economic ‘soft landing’ and recession concerns ease.
In addition, US inflation is cooling, which may give the Federal Reserve some leeway toward scaling back its interest rate increases. US PPI data last week fell below expectations, reducing Fed rate hike expectations and driving oil prices up. PPI declined by 0.5% in December, versus estimates of a 0.1% drop. Headline inflation also dropped to 6.5% year-on-year in December from 7.1% in November. Aggressive rate hikes stifle economic activity fuelling recession fears. As inflation starts to cool though, central banks are starting to lower the pace of rate hikes, raising oil demand expectations.
Oil prices are also supported by optimism over China’s economic recovery. China’s economy has suffered from prolonged lockdowns and the country’s debt has ballooned over the past few years. The Chinese government recently eased some of its strident Covid regulations, abandoning its zero-Covid policy. China has re-opened its borders after almost three years, fuelling hopes of economic recovery. Recent data shows a marked increase in air travel and road traffic in China after the restrictions were eased, indicating increased economic activity and oil demand. China is the world’s largest energy importer and prolonged lockdowns have dampened oil demand.
US Crude Oil inventories rose by 0.5M barrels on Wednesday, disappointing expectations of a 1.2M barrel build. Supply concerns boosted oil prices, as the oil demand outlook remains high.
OPEC released its monthly report last week, raising optimism about the oil demand outlook. The organization left its global oil demand forecast unchanged, boosting oil prices, as markets had been expecting a drop in oil demand outlook.
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