Oil prices increase as Chinese economic outlook improves

Oil prices have increased again this week, spurred largely by an improving economic picture for China which is currently coming back to life following the easing of the draconian and long-lasting COVID policies in recent months. This re-opening is likely to boost fuel demand in the world’s second-largest economy. In November, Chinese oil demand climbed to the highest level since February, according to data from the Joint Organisations Data Initiative, which was released on Thursday.
On Tuesday, OPEC said that Chinese oil demand would rebound this year due to the relaxation of the country's COVID-19 curbs and that this rebound would drive global growth.

Oil prices were also supported by hopes that the U.S. central bank will soon end its tightening cycle.
Federal Reserve Bank of New York President John Williams said on Thursday that the U.S. central bank is seeing signs of inflationary pressures cooling off from torrid levels.

“The two largest economies in the world are needing more crude. The oil market has been down on global recession fears, but it still is showing signs it can remain tight a little while longer," said Edward Moya, senior market analyst at OANDA.

Also extending support to prices was a weaker dollar index, which was headed for a second consecutive weekly decline. A weaker dollar makes crude, priced in the currency, cheaper for foreign buyers and therefore potentially increases demand.

The potential price increase this week could have been much higher but has been tamed a little by the flow of weak economic data out of the U.S. which suggests that retail sales plunged by 1.1% in December, a key trading month for retailers. With UK retail data due for release this week, it is likely this scenario could be echoed by British consumers adding pressure to an already struggling retail sector.


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