By Ambar Warrick
Investing.com-- Oil prices extended gains into a second consecutive session on Tuesday as markets bet that a Chinese reopening, U.S. buying, and a potentially colder-than-expected winter will spur a demand recovery going into 2023, despite increased fears of a global recession.
Optimism over China’s reopening was the main driver in a recent crude oil recovery rally, as the country began scaling back COVID-linked restrictions on travel and economic activity.
But this was largely tempered by a surge in infections, which analysts say could delay a broader reopening in the country.
Still, several Chinese government officials, including President Xi Jinping, vowed to shore up economic growth from pandemic lows, as well as greatly restore transport demand.
Early road and air traffic indicators from the country show that transport demand has already recovered sharply in the first few weeks of the reopening, which bodes well for future fuel demand.
London-traded Brent oil futures rose 0.7% to $80.66 a barrel, while West Texas Intermediate crude futures jumped 0.9% to $76.30 a barrel by 21:40 ET (02:40 GMT). Both contracts have recovered sharply from a one-year low hit earlier this month.
A vow by President Joe Biden to begin replenishing the U.S. Strategic Petroleum Reserve next year also aided markets with the prospect of increased demand in 2023. The U.S. will begin refilling the SPR at a staggered pace, beginning with a 3 million barrel buy in February.
Signs of a colder-than-expected winter drove up expectations that demand for crude will grow in the near-term, particularly for heating purposes. The International Energy Agency also recently forecast that crude demand will remain robust in 2023.
Still, the outlook for crude markets has been recently clouded by growing fears of a recession in 2023. Analysts have warned that rising interest rates and high inflation could further crimp economic activity in the coming months, which is bound to weigh on crude demand.
Fears of such a scenario weighed heavily on oil prices in recent weeks, especially after several major central banks signaled that they will keep raising interest rates, even as the economic outlook deteriorates.
A recovery in the dollar also capped gains in oil prices, given that a stronger dollar makes commodities priced in the greenback more expensive.