Oil Mixed in Thin Trade as Market Assesses China's Outlook

Liubov Georges
By  Liubov Georges , DTN Energy Reporter

WASHINGTON (DTN) -- Nearest-delivered Brent crude futures on the Intercontinental Exchange and West Texas Intermediate on the New York Mercantile Exchange settled Monday's session higher. The gains came after Chinese President Xi Jinping pledged to boost economic growth next year as the central government accelerates its abrupt exit from zero-COVID policies that have been a drag on China's fuel demand for almost three years, while the ULSD contract fell and RBOB futures advanced.

At the conclusion of a two-day Central Economic Work Conference in Beijing, Chinese leadership outlined measures aimed at supporting domestic consumption in 2023, including stimulus for the real estate sector, consumer spending, and technological development. The gamechanger for China next year will be living with COVID and supporting real estate developers.

Experts are divided on how fast Beijing can steer the country of 1.6 billion people out of lockdowns following this month's about-face on its COVID policy, a critical factor in spurring economic activity. The consensus so far sees a bumpy road for the first two quarters of next year before a critical mass of China's population would have some sort of exposure to the virus.

In the meantime, Chinese citizens have been cautious about going to crowded places, though air and train tickets for the Chinese New Year are in demand. Some studies suggest nearly 1 million people will die in the coming months following Beijing's sharp policy U-turn and the government's inadequate investments in intensive-care unit capacity.

On the second issue, the government will likely resort to fiscal stimulus and stable investment policies to attract interest for real estate development.

This Central Economic Work Conference usually prepares the groundwork for the March Government Work Report. By then, markets should see more concrete policies applying to these initiatives.

These policies are directly or indirectly seen boosting demand in Asia's largest economy and region. China is the world's second-largest oil consumer, importing on average 10.1 million barrels per day (bpd) in the year prior to the outbreak of the COVID-19 pandemic. Analysts estimate that China's demand is lagging somewhere between 700,0000 bpd and 1 million bpd below its pre-pandemic norms.

Further supporting the crude complex, U.S. Department of Energy on Friday said it would start repurchasing oil to refill the Strategic Petroleum Reserve in coming months, beginning with an initial buyback of 3 million barrels (bbl). The crude is to be delivered to the SPR in February. It's unclear when the next DOE purchase announcement will be made, with DOE in October outlining the administration's repurchase plan would be for deliveries in 2024 and 2025 following this year's sale of 180 million bbl to stabilize the global market in the face of Russia's invasion of Ukraine nearly 10 months ago.

WTI is also above the $67- to $72-per-bbl target range the DOE said it would buy oil for the SPR, although below the $96-per-bbl crude from the SPR was sold at this year.

At settlement, WTI for January delivery advanced $0.90 to $75.19 per bbl ahead of the contract's expiration Tuesday afternoon, with the February contract settling with a modest $0.19 premium. February Brent crude on ICE gained $0.76 to $79.80 per bbl. NYMEX January RBOB futures rallied $0.0453 to $2.1776 per gallon, and January ULSD futures declined $0.0664 to $3.0535 per gallon.

Liubov Georges can be reached at liubov.georges@dtn.com

Liubov Georges