Oil prices rise slightly on Tuesday, with Brent crude climbing 34 cents to $85.10 a barrel and U.S. West Texas Intermediate rising 29 cents to $81.12 a barrel. The rise was attributed to stronger economic data from China, the world's largest crude importer, which has bolstered the demand outlook for oil. China's economy grew faster than expected in the first quarter of 2023, expanding 4.5% year-on-year as the country's policymakers aim to bolster growth following the end of strict COVID-19 curbs in December.
According to CMC Markets analyst Leon Li, the remarkable recovery of the Chinese economy has supported the recent rebound in oil prices. May is the seasonal peak travel period in China, and demand for fuel is expected to post a significant year-on-year increase. Refinery throughput in China also surged to record levels in March, signalling robust demand for fuel as refiners stepped up runs to capture strong export demand and build up inventories ahead of planned maintenance. The International Energy Agency has predicted that China will account for most of the crude oil demand growth in 2023.
While output cuts announced by OPEC+ producers could help to address a supply deficit expected in the second half of the year, the International Energy Agency has warned that they could also hurt consumers and set back global economic recovery. The agency has forecast that China will account for most of the 2023 crude oil demand growth. However, oil prices remain under pressure due to a stronger dollar and a rise in treasury yields, which National Australia Bank analysts say could dampen economic recovery hopes.
Data from the Energy Information Administration has shown that U.S. crude oil and natural gas production in the country's seven biggest shale basins is expected to rise to a record in May. This signals some supply increment on this front, but data on U.S. crude stockpiles is due on Tuesday and Wednesday. A preliminary Reuters poll showed on Monday that U.S. crude oil inventories likely fell by about 2.5 million barrels last week. The OANDA senior market analyst Edward Moya predicts that the oil market will soon have to deal with recession fears, but for now, it should be a choppy trade.
The rise in oil prices and the stronger economic data from China may impact the forex market. As demand for oil increases, the price of crude oil rises, which can also lead to a stronger currency in the country that is exporting the oil. In this case, as China's economy gathers pace, there may be an increase in demand for its currency, the yuan. Furthermore, a rise in oil prices can impact the value of currencies in oil-importing countries. For example, if the U.S. continues to import oil from China, the increase in oil prices could lead to a weaker U.S. dollar. Forex traders will be monitoring these developments closely and adjusting their positions accordingly.