By Ambar Warrick
Investing.com -- Oil prices extended gains on Wednesday as increasing optimism over a recovery in Chinese demand largely offset fears of a global economic slowdown in 2023, with the IEA’s monthly report now coming into focus.
The Organization of Petroleum Exporting Countries (OPEC) said in a monthly report on Tuesday that a Chinese reopening will spur a strong rebound in crude demand this year. But the cartel also left its global oil demand forecast unchanged at a rise of 2.22 million barrels per day.
Focus is now squarely on a monthly report from the International Energy Agency (IEA) due later in the day.
Crude markets closed higher on Tuesday after the OPEC report, also taking support from data that showed the Chinese economy grew more than expected in the fourth quarter of 2022. While economic growth in the world’s largest oil importer still shrank substantially in 2022 from the prior year, markets are betting that the withdrawal of anti-COVID measures in the country will eventually drive a strong recovery.
Brent oil futures rose 0.7% to $86.53 a barrel, while West Texas Intermediate crude futures rose 0.8% to $81.10 a barrel by 22:34 ET (03:34 GMT). Both contracts surged over 2% on Tuesday in a late-session rally.
Early road and air transport indicators from China show a sharp pickup in activity after the lifting of most lockdown measures. The country also reopened its international borders earlier in January for the first time in three years, marking a clear pivot away from the economically damaging zero-COVID policy.
But markets are still uncertain over the timing of a Chinese economic recovery this year, given that the country is grappling with its worst yet COVID-19 outbreak.
Fears of a global recession in 2023 have also limited gains in crude markets, amid several warnings of slowing growth in the world’s largest economies.
Focus this week is also on a slew of economic indicators from the U.S., euro zone, UK, and Japan. U.S. retail sales and industrial production data, due later on Wednesday, will be of particular importance to markets, given that they lend some insight into manufacturing activity and consumer strength - two major drivers of U.S. crude demand.
The dollar also recovered slightly from an over seven-month low this week, putting some pressure on commodities priced in the greenback.