The oil market is under the spell of Christmas. Due to the approaching holidays, many people fly to their families. A greater number of flights in the United States (US) in particular is driving up international demand for oil. This is not the only reason oil has become more expensive. Lower production expectations from the United States and optimism about the weakened Chinese corona policy are also driving up oil prices.
The oil price rose by more than 8% this week. On Friday, December 16, the price of Brent oil was $76,18 per barrel. After that, the oil price rose steadily. On Thursday, December 22, a barrel of Brent oil cost $82,88.
A major reason for the rising oil demand is that many people are currently traveling to visit their families. For example, many expats return to their native country for the holidays. Especially within the US, people fly to their families more often. The additional demand has a significant impact on the country's oil supplies. In the US, oil supplies decreased by 5,89 million barrels. The US Energy Agency (EIA) expected oil supplies to fall by only 1.66 million barrels.
Lower expectations for American oil production in 2023 are also pushing the oil price up. OPEC has revised downwards expectations for US oil production. According to the oil cartel, the US will produce less shale oil by 2023. The lower production is the result of under-investment in fossil fuels. Due to an increasing focus on renewable energy, the US is investing less and less in fossil fuels.
Optimism about China prevails
Optimistic expectations from China also pushed up the oil price. China has been weakening its spartan corona policy for about a month now. At the beginning of December, Beijing decided that Chinese no longer have to serve part of their quarantine in Covid hotels. As in other countries, infected Chinese people will stay at home after this decision. In addition, large-scale testing programs are being abolished in several Chinese cities. Until recently, all residents of several major Chinese cities had to be tested every other day.
Last week there was a further major relaxation. China decided to loosen the domestic travel restrictions it had imposed due to Covid. Until Tuesday, September 10, all Chinese people were followed by means of an app. In this way, the Chinese government hoped to prevent people from traveling to infected areas. Speculation about an end to the infamous zero Covid policy once again caused oil prices to rise this week. Because China is the world's largest oil user, international demand for oil will increase if China loosens their strict Covid policy.
Yet the question remains whether China can afford further relaxations. Because China has always strictly suppressed the coronavirus until now, the Chinese population has barely built up resistance to the virus. In addition, many old people have not been vaccinated and the Chinese vaccine is a lot less effective than the Western mRNA vaccines. As a result, Chinese healthcare is currently flooded with corona patients. According to some sources, as many as 2 million Chinese could die from the virus due to the current outbreak.
After last week's strong increase, the diesel price is falling again. On Friday, December 16, the diesel price was at its highest point of the week. The price of 100 liters of diesel at that time was €135,39. The diesel price then fell to €20 until Monday, December 130,92.