Oil prices dipped on Monday, but optimism that China’s reopening from COVID restrictions will lift fuel demand in the world’s top crude importer kept prices near 2023 highs, reached after a surge in prices last week.
U.S. West Texas Intermediate crude was at $78.96 a barrel, down 99 cents, or 1.24%, amid thin trade during a U.S. public holiday.
Both contracts rose more than 8% last week, the biggest weekly gains since October and that may have spurred some short-term selling to lock in the profits from the move higher.
“After the scale of the move last week, we could be seeing some profit taking,” said Warren Patterson, ING’s Head of Commodities Strategy, adding that thinner trading volumes would make any selling appear to be more pronounced.
Prices continued to hover near 2023 highs on Monday. China’s crude imports rose 4% year-on-year in December, while an expected resurgance in travel for the Lunar New Year holiday at the end of the week is brightening the outlook for transportation fuels.
Traffic levels in China are continuing to rebound from record lows following the easing of COVID-19 restrictions, resulting in stronger demand for crude and oil products, ANZ analysts said in a note.
The rebound in domestic demand is expected to lead to a 40% drop in China’s exports of refined oil products in January from December’s figure, led by gasoline, trading sources and analysts said.
“While there is still plenty of optimism around Chinese demand, in the near term the oil market remains relatively well supplied,” ING analysts said in a note.
Iranian oil exports hit new highs in the last two months of 2022 and are making a strong start to 2023 despite U.S. sanctions, amid higher shipments to China and Venezuela.
Exports have hit the highest since 2019, according to companies that track the flows. This comes despite headwinds such as a stall in talks over its nuclear programme and competition from discounted Russian crude.
The Organization of the Petroleum Exporting Countries and the International Energy Agency will release their monthly reports this week, closely watched by investors for global demand and supply outlooks.
Investors will also be watching for a key Bank of Japan (BOJ) meeting this week to determine if it would defend its super-sized stimulus policy.