Oil prices steadied on Tuesday after falling nearly 2 per cent the previous day amid signs of an economic recovery in China, the world’s largest crude importer.
Brent, the benchmark for two thirds of the world’s oil, was trading 0.20 per cent higher at $84.93 a barrel at 11.55am UAE time. West Texas Intermediate, the gauge that tracks US crude, was up 0.19 per cent at $80.98 a barrel.
On Monday, Brent settled 1.8 per cent lower at $84.76, while WTI was down 2.05 per cent at $80.83.
China's economy, the world’s second-largest, grew at a faster-than-expected pace in the first quarter as the lifting of Covid-19 curbs earlier this year helped improve consumer spending.
The country’s gross domestic product increased by 4.5 per cent on a yearly basis in the first three months of the year, higher than the 2.9 per cent recorded in the previous quarter, according to data from the National Bureau of Statistics.
The market was expecting China’s economy to grow by 4 per cent in the first quarter, Emirates NBD said in a research note.
China, which followed a strict zero-Covid policy for nearly three years, is set to be a key driver of crude demand this year.
"A strong Chinese growth ... means a potential boost to energy and raw material prices, that would boost inflation, get the central bankers’ hands tighter and have a reduced positive impact for equities," said Ipek Ozkardeskaya, senior analyst at Swissquote Bank.
Susan Joho, a Julius Baer economist, said that Chinese economic recovery is "on track" after first quarter data exceeded expectations.
"We expect growth momentum to ease after the strong Q1 (first quarter), but because of the low base from last year due to lockdowns, year-on-year growth will continue to accelerate," said Ms Joho.
The International Monetary Fund estimates China's economy will expand about 5.2 per cent in 2023, following a 3 per cent expansion in 2022, as it benefits from a full reopening this year.
The International Energy Agency expects global oil demand to rise by 2 million barrels per day to a record 101.9 million bpd in 2023.
Oil futures ended lower on Monday as investors worried that higher inflation from a recent surge in energy prices may prompt the US Federal Reserve to adopt a more aggressive monetary policy.
“The economy is showing resilience and while normally that is good news for the crude demand outlook, that is disrupting calls for a peak in Fed tightening,” said Edward Moya, senior market analyst at Oanda.
“The oil market will soon have to deal with recession fears but for now it should be a choppy trade.”
Last week, the IMF trimmed its forecast for global growth this year and next by 0.1 percentage points to 2.8 per cent and 3 per cent, respectively.
The global economy faces a “rocky” recovery as geopolitics, monetary tightening and inflation continue to weigh on growth, the fund said.
Earlier this month, Opec+ producers said they would make voluntary oil production cuts of 1.16 million bpd from May until the end of December to support oil market stability.
Russia, a part of the 23-member alliance of producers, also said it would extend its output cut of 500,000 bpd until the end of this year.
Moscow had previously pledged to curb its production until June in response to the price caps imposed by the West on exports of its crude oil and refined products.
