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Why Oil’s 7-Month Downturn May Be About To Reverse

Why Oil’s 7-Month Downturn May Be About To Reverse
Oil prices have kicked off the new year on the back foot, tumbling to large losses in the first week before staging a half-hearted recovery in the second as demand uncertainty continues to weigh on trading. Concerns over the rapid expansion of China’s COVID cases, following the relaxation of strict zero-COVID policies have continued to weigh heavily on oil prices.
Luckily, reprieve could be on the way with oil markets having reacted positively to China re-opening its borders on February 8, 2023 as one of the final acts of abandonment of the zero-Covid era. More relief is expected to come thanks to the Lunar New Year travel providing a short-term demand boost. Chinese Lunar New Year lasts for two weeks, and is set to begin on Sunday, 22 January 2023, and end on February 5, the date of the rising of the full “Snow Moon.” Indeed, the Civil Aviation Administration of China (CAAC) has predicted that passenger flights might reach 88% of their pre-pandemic levels by the end of January. However, this might only be a temporary bump unless China is able to move past its latest COVID wave before the oil markets feel confident about prospects of a sustained demand uplift.  But some experts are still holding out hope that the worst could be in the rearview mirror. Commodity analysts at Standard Chartered have expressed optimism that the prolonged selloff could have reached an inflection point, with the analysts saying that the seven-month long downwards trend is likely to falter now. The analysts say that the previous hyperbole that triggered a huge oil price rally has cooled off and has been replaced by excessive pessimism leading to oil prices undershooting their 2023 target.
StanChart points to the oil futures markets, where ‘“...speculative positioning now reflecting an overly bearish viewpoint in our opinion and with crude oil the least popular positive exposure apart from palladium among investors, we think there is now short-term upside of USD 5-10/bbl, with more to follow in H2. With supply risks biased towards lower supply, and with OPEC patience likely to be strained by further attempts to push prices significantly below.”
The commodity experts have forecast that demand growth in 2023 will clock in at 1.04 million barrels per day (mb/d), with non-OECD countries providing all but 9 thousand barrels per day (kb/d) of that. Demand is expected to be stronger in the second half of the year, with H2 demand coming in at 101.1mb/d, 1.7mb/d higher than the H1 average. The analysts say much of that growth will come from the Asia-Pacific region where they have predicted that growth will accelerate from 177kb/d in 2022 to 852kb/d in 2023, with China seeing demand growth of 483kb/d compared to a 350kb/d decline in 2022. $Camber Energy(CEI.US)$ $Imperial Petroleum(IMPP.US)$ $Occidental Petroleum(OXY.US)$ $Exxon Mobil(XOM.US)$ $Chevron(CVX.US)$
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