Oil Set for Monthly Drop as Chinese Demand, Fed Meeting in Focus

By Bloomberg

Jan 31, 2023

image is BloomburgMedia_RPAUXRT0G1LJ01_31-01-2023_05-00-07_638107200000000000.jpg

A natural gas flare burns near an oil pump jack at the New Harmony Oil Field in Grayville, Illinois, US, on Sunday, June 19, 2022. Top Biden administration officials are weighing limits on exports of fuel as the White House struggles to contain gasoline prices that have topped $5 per gallon. Photographer: Luke Sharrett/Bloomberg

Oil headed for a monthly loss as traders waited for more clues on the outlook for Chinese energy demand, a policy decision from the US Federal Reserve, and the latest guidance from cautious OPEC+ producers.

West Texas Intermediate eased toward $77 a barrel after retreating by more than 2% in the week’s opening session. China’s reopening after its harsh Covid Zero policy was abandoned has boosted optimism that consumption will pick up as mobility improves. Still, oil’s latest move lower came despite data on Tuesday showing activity in Asia’s biggest economy has rebounded sharply.

  

While the Federal Reserve is expected to raise interest rates again in its first meeting of 2023 on Wednesday, a smaller hike of 25 basis points is widely expected. That, and comments from Chair Jerome Powell, may signal that the US central bank’s monetary tightening cycle could be close to complete.

Crude has endured a bumpy ride in January, and is now on course for a third consecutive monthly decline as concerns about a US slowdown overshadowed optimism on China. An advisory committee of ministers from the Organization of Petroleum Exporting Countries and its allies will review production policy later this week, although no change is expected. Its session comes ahead of the next round of sanctions and caps on Russian energy flows.

“The Fed is certainly the main driver of sentiment this week,” said Vandana Hari, founder of Vanda Insights. “Crude continues to track the broader financial markets as supply-demand fundamentals appear largely balanced.”

Still, bullish signals remain. Global benchmark Brent’s prompt spread — the gap between its two nearest contracts — has widened further in backwardation ahead of March’s expiration later Tuesday. The gap was 58 cents a barrel, up from 3 cents at the start of last week. Also, money managers increased their net-long Brent positions to the largest in nearly 11 months.

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©2023 Bloomberg L.P.

By Yongchang Chin

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