Oil reached its highest price this month as optimism over Chinese demand countered concerns about a global economic slowdown.
(Bloomberg) — Oil reached its highest price this month as optimism over Chinese demand countered concerns about a global economic slowdown.
West Texas Intermediate increased by as much as 1.8% Friday on its way toward a third straight weekly gain. The US dollar has been on a downward arc since peaking in September, with investors looking for signals the Fed may slow the pace of its rate hikes. The Bloomberg Dollar Spot Index has declined 2% this year, making commodities more attractive.
Crude has recovered from a steep slump at the start of the year and liquidity is returning to the futures market. A lot of the optimism is because of China, the biggest importer, which reported a 120% jump in trips abroad during the first six days of the Lunar New Year holiday, compared with last year.
Spain’s economy grew more than expected last quarter, adding to bullish sentiments a day after similar data from the US helped ease fears over a recession. Trafigura Group sees “a lot of upside” for oil markets as pent-up demand is unleashed.
“The fears of a global recession which were priced in at the start of the year have been fading day by day,” said Keshav Lohiya, founder of Oilytics Ltd. in London. “The dollar’s decline, encouraging growth data from the US and the euro zone, and declining natural gas prices have brightened the macro sentiment and provided a big tailwind for oil prices.”
The oil market is also starting to indicate signs of tightness after a period of weakness. The prompt spread for global benchmark Brent — the gap between the two nearest contracts — firmed in a bullish backwardation pattern after spending most of the past two months in contango.
Attention is now shifting to the potential fallout from European Union sanctions on Russia’s seaborne shipments of petroleum products early next month.
The EU is considering a plan to cap the price of premium refined fuel exports like diesel at $100 a barrel, as well as banning seaborne imports into Europe. Goldman Sachs Group Inc. has warned that the new sanctions are likely to be more disruptive than those on Russian crude that took effect late last year.
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