Due to the sluggish economy, the oil price reached the lowest point of 9 on Friday 2022 December. Reports of disappointing economic results dominated the news this week as well. Nevertheless, the oil price has continued to rise this week. The International Energy Agency (EIA) predicts that the oil market will be tight in 2023.
The oil price has been on the rise this week. On Friday, December 9, the price of Brent oil was still $76,10. The price then rose until Wednesday, December 15. That day, the price of Brent oil reached $82,70. On Thursday, December 16, the oil price dropped slightly again, to $81,94.
The oil price has fallen sharply since the beginning of November. On November 4, the price of Brent oil was still $96,90. On Monday, December 9, the price of oil reached its lowest point of the year. At that time, the oil price was 22,5% lower. Due to the sluggish economy, global demand for oil is currently very low.
The weak Chinese economy in particular is dragging down international oil demand. On Wednesday, December 14, the Chinese government released new economic results. This shows that Chinese industrial production has grown by 2,2% this year. This means that the growth figure is much lower than the expected 3,6%. The lower Chinese growth rate is the result of China's strict Covid policy. This year, several lockdowns severely hampered Chinese industry. Because many Chinese were not allowed to leave their homes, various industries were shut down for part of the year.
The demand for oil is also low in America at the moment. Rapid successive interest rate increases are making the American economy increasingly difficult. On Wednesday, December 14, the American Central Bank (FED) announced that it would raise interest rates for the fifth time since June. To ensure that the American economy is not unnecessarily damaged, the FED has chosen to increase interest rates this time not by 75 (0,75), but by 50 points (0,5%). With the new increase, interest rates have reached their highest level since 2007. High interest rates make it more difficult for American industry to borrow money. As a result, the FED's decision brings an American recession one step closer.
Oil price rises due to relaxation of Chinese Covid measures
The fact that the oil price has been on the rise again since Monday is the result of a new relaxation of the infamous Chinese Covid policy. The Asian country appears to be slowly but surely phasing out its strict Covid policy. Last week, China announced that Chinese no longer have to serve their lockdown in a hotel. This week, China relaxed domestic travel restrictions.
Until recently, the Chinese government tracked all domestic passenger traffic with an app. Through this measure, China hoped to prevent citizens from visiting infected areas. The app has been inactive since the night of Tuesday, December 10. According to several analysts, the new relaxation confirms the suspicion that China is slowly but surely phasing out its zero-Covid policy.
International Energy Agency predicts recovery
The International Energy Agency confirms that the Chinese oil market is showing the first tentative signs of recovery. The IAE predicts that Chinese oil demand will return to normal next year. Moreover, it is not only Chinese demand for oil that is increasing. According to the IAE, oil demand from India and Saudi Arabia will also recover next year. The agency predicts that the recovery will lead to tightness in the oil market from the second quarter of 2023.
The price of diesel is rising as fast as the price of oil. On Friday, December 9, the diesel price was at its lowest since January 16. The price for 100 liters of diesel at that time was €127. On Thursday, December 15, the diesel price had risen sharply, to €135,25.