Oil Price Forecast: China’s Strong Economic Growth Boosts Oil Demand Amid Global Recovery

Highlights

• China’s Q1 economic growth beats expectations at 4.5%
• China’s high season for travel expected to boost fuel demand
• IEA projects China to contribute the majority of oil demand growth in 2023

Overview

After experiencing a 2% drop the prior session, oil prices strengthened somewhat on Tuesday. The market is being underpinned by robust economic data from China. Prices are essentially being supported by an improved outlook for demand from the world’s biggest buyer of crude oil.

At 07:35 GMT, WTI Oil is trading $81.09, up $0.245 or +0.30%.

China’s Q1 GDP Grows by 4.5%

Official data revealed that China’s economy grew by 4.5% year-on-year in the first quarter, surpassing expectations, as policymakers aimed to strengthen growth after the strict COVID-19 restrictions ended in December. The impressive rebound of the Chinese economy has bolstered the recent upswing in oil prices.

Additionally, May marks the high season for travel in China. This is anticipated to lead to a substantial year-on-year rise in fuel demand. Chinese refinery throughput reached an all-time high in March. This indicates strong fuel demand as refiners ramped up production to meet robust export demand. And stock up inventories in advance of scheduled maintenance.

IEA Projects China to Drive Crude Oil Demand in 2023

The International Energy Agency (IEA) projects that China will drive the majority of crude oil demand growth in 2023. Despite the projection that China will drive the majority of crude oil demand growth in 2023, the International Energy Agency (IEA) cautioned that supply shortages anticipated in the latter half of the year could worsen. This is due to the output cuts announced by OPEC+ producers, which could negatively impact consumers and potentially hinder the global economic recovery.

Strong US Dollar, Rate Hike Fears Put Pressure on Oil Prices

Oil prices continue to face downward pressure, primarily driven by a strengthening U.S. dollar and an increase in treasury yields. The dollar has gained strength amid interest rate hikes, and market traders are predicting that the U.S. Federal Reserve will raise its lending rate once more in May, potentially dimming prospects for economic recovery. A stronger dollar makes commodities denominated in dollars more costly for purchasers holding alternative currencies.

US Shale Oil and Gas Production to Reach New Record in May

The EIA released data on Monday. It is predicting that crude oil production in the seven largest shale basins in the United States will reach a new record in May. This could potentially increase the supply. Additionally, data on U.S. crude stockpiles is set to be released on Tuesday and Wednesday. Although there are concerns of an economic downturn, the oil market is still expected to be choppy and rangebound over the near-term. This expectation is based on an initial Reuters survey on Monday. It projects a decline of approximately 2.5 million barrels in crude oil inventories last week.

Technical Analysis

From a daily technical perspective, WTI crude oil is trading above the pivot at $73.89. The technicals appear to be in favor of an upside move and a potential test of that $82.53. Overtaking this level could extend the rally into $89.48. If the market does not overtake $82.53 then look for a break into the pivot at $73.89.

Resistance and Support Lines:

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