Oil prices have risen on Monday as investors remain bullish on China’s demand recovery and concerned about underinvestment that could impact future oil supply. Major producers have also continued to limit output to support prices.
Brent crude oil increased by 0.8% to reach $83.70 a barrel, while West Texas Intermediate (WTI) crude oil reached $77.14 a barrel, up 0.7%.
The oil market has rebounded this week, driven mainly by China’s oil demand recovery and a shortage in oil supply due to underinvestment. Last week, oil prices fell by about 4% after the United States reported higher crude and gasoline inventories.
Despite the recent announcement that the U.S. will sell 26 million barrels of crude oil from its Strategic Petroleum Reserves, global supply is expected to remain flat to down due to production cuts by Russia and OPEC+.
National Australia Bank’s Head of Commodity Research, Baden Moore, said that the reopening of China and the rebound in China and global jet demand is likely to drive upside risk to prices. China is the world’s largest crude oil importer, and analysts expect its oil imports to hit an all-time high in 2023 due to increased demand for transportation fuel and as new refineries come onstream.
Although demand continues to rise, supply constraints, underinvestment, and shale limitations will likely drive prices towards $100 a barrel by the end of the year, according to analysts from Goldman Sachs.
The market’s pivot back to a deficit has caused a rebound in oil prices, as China’s demand recovery and supply concerns take center stage.
It is expected that oil prices will continue to rise in the coming months as the market returns to a deficit. Investors are cautiously optimistic about the future of oil prices, but only time will tell how sustainable the rally will be.