Due to the east Asian Lunar New Year vacation, which thinned down early trade on Monday, oil prices dipped lower. However, they managed to hold onto the majority of last week’s gains due to the possibility of an economic recovery in China, the world’s largest oil consumer, this year.
At 03:49 GMT, Brent crude prices were down 46 cents, or 0.5 percent, to $87.17 a barrel, while US West Texas Intermediate (WTI) crude futures were down 36 cents, or 0.4 percent, to $81.28.
Analysts projected that the excitement around China’s reopening would drive up oil prices.
The market wants to hold onto long positions, according to Sukrit Vijayakar, director of energy consultancy Trifecta in Mumbai, in case China’s economy picks up again.
Data indicates a significant increase in travel in China following the relaxation of Covid-19 limitations, according to a note from ANZ commodity analysts, who cited a 22 percent increase in road traffic congestion so far this month compared to the same period last year in the 15 major Chinese cities.
Fatih Birol, the chairman of the International Energy Agency, warned on Friday that if the Chinese economy recovers as predicted by financial institutions, energy markets may become tighter this year.
“Regarding the markets, I wouldn’t be too carefree, and 2023 might very well be a year. Whereas some of my colleagues may not realize it, we observe tighter markets “the writer suggested.
Speaking to Reuters on the margins of the annual meeting of the World Economic Forum in Davos, Birol said.
The increase in travel in China before the Lunar New Year holiday portends favorably for fuel consumption following the two-week break.
The market is preparing for additional sanctions against Russian oil, which will cause an increase in demand, according to ANZ analysts.
In addition to their price restriction on Russian crude, which has been in effect since December, and an EU embargo on imports of Russian oil by sea, the European Union and the Group of Seven (G7) alliance will cap prices of Russian refined goods beginning on February 5.
The G7 has decided to put off until March a review of the restriction on Russian oil prices, a month later than anticipated to allow time to evaluate the effects of the oil product price limitations.