Crude oil prices are on the rise despite warnings from both the International Monetary Fund and the World Bank that a recession is likely this year. Photo by John Angelillo/UPI | License Photo
Jan. 11 (UPI) -- Crude oil markets on Wednesday were largely ignoring what seemed to be weak demand indicators from the U.S. economy, focusing instead on China's reopening.
Crude oil prices this week moved in defiance of recent warnings about the health of the global economy. The World Bank on Tuesday added its voice to the growing chorus of those, including the International Monetary Fund, warning of a global recession in 2023.
Global policymakers are hiking lending rates in an effort to cool demand enough to lower consumer-level inflation, though they risk throttling activity enough to usher in an economic contraction.
The World Bank estimated Europe, for example, will see no economic growth at all this year.
Oil prices, nevertheless, are on the rise. Brent crude oil, the global benchmark for the price of oil, was up 3% as of 12:30 p.m. EST to trade at $82.50 per barrel. Brent is up some 5.1% on the week.
The rally comes amid data that suggests demand in the U.S. economy is declining. Data from the U.S. Energy Information Administration show commercial inventories of crude oil, gasoline and distillates -- a category that includes diesel -- all increased from week-ago levels.
The total amount of refined petroleum product supplied to the market during the week ending Jan. 6, meanwhile, was 4.3% lower than the previous week. That's a metric that traders use as a proxy for demand.
In its latest market report, meanwhile, EIA expects sluggish growth in the U.S. economy, at 0.5% for 2023.
"Relatively flat economic growth in 2023 results in total U.S. energy consumption falling by 0.9% in our forecast," it said.
Those data would not normally trigger a rally in crude oil prices, suggesting the market is more focused on China, the second-largest economy after the United States.
China recently reopened its borders and is quickly unraveling the strict COVID-19 policies that throttled momentum in one of the most oil-hungry nations in the world.
Stephen Brennock, an analyst at London oil broker PVM, said in a research note published Wednesday that China raised its outlook for oil imports by 20% compared to year-ago levels.
"All this reinforces expectations that Chinese demand is set for a rebound once the exit COVID wave wanes," he wrote.
Forecasts for the future are remarkably varied, showing the market is expected to be volatile for the time being. EIA is expecting the price of Brent to average $83 per barrel this year, while Canada-based Enverus Intelligence Research expects Brent will reach $108 per barrel by the fourth quarter.
"Looking forwards to 2023, we see more reasons to be bullish on oil prices than bearish, with global oil supply constraints set to keep balances tight despite a pronounced global economic downturn," said Bill Farren-Price, director of EIR.