China’s Holiday Travel Boosts Optimism for Oil Demand, Despite Economic Concerns

China’s upcoming May Day holiday is bringing optimism to the oil industry as holiday travel is expected to increase fuel demand in the world’s second-largest economy.

Despite concerns about rising interest rates and slowing economic growth in other countries, investors are optimistic about the potential for increased demand for energy.

Bookings in China for trips abroad during the holiday period indicate a continued recovery in travel to Asian countries. This news has helped to boost oil prices, which have held steady in recent days, with Brent crude falling only 3 cents to $82.70 a barrel and U.S. West Texas Intermediate crude easing 3 cents to $78.73 a barrel.

“Investors expressed optimism that Chinese holiday travel would boost fuel demand in the world’s largest oil importer,” said Leon Li, an analyst at CMC Markets.

However, despite this optimism, investors remain cautious about the potential impact of central banks in the United States, Britain, and the European Union raising interest rates further to curb inflation. These actions could slow economic growth and dent energy demand.

Suvro Sarkar, energy sector team lead at DBS Bank, highlighted concerns about “still hawkish Federal Reserve, recession predictions in the West in the second half of the year, potential for lower than expected oil demand recovery in China, and still robust Russian oil exports despite the official guidance of a 500,000 barrels per day (bpd) cut.”

While these concerns are valid, experts still believe that oil prices will recover to above $85 per barrel in the coming months, as the OPEC+ cut kicks in and more evidence of oil demand growth from China comes in.

Russia’s Deputy Prime Minister Alexander Novak promised to reduce production by 500,000 bpd in March, with an extension of cuts until the end of the year. However, despite this promise, trading and shipping sources suggest that oil loadings from Russia’s western ports in April will rise to the highest levels since 2019, above 2.4 million bpd.

Investors are eagerly awaiting industry data on U.S. oil stockpiles, with analysts polled by Reuters expecting the data to show U.S. crude inventories falling by about 1.7 million barrels in the week to April 21. U.S. government data on inventories is due on Wednesday.

Despite concerns about economic factors that could impact the future of oil prices, the long-term outlook for oil prices remains positive. As China’s middle class continues to expand and the country’s economy grows, demand for energy is expected to increase. The balance of supply and demand will continue to play a major role in shaping energy markets in the coming months and years.