Global oil prices surged over 3% on Tuesday, June 13, 2023, rebounding from recent losses. The catalyst for this upswing was China's central bank's decision to lower a key short-term lending rate for the first time in ten months. This move is intended to stimulate the country's post-pandemic economic recovery, which has been slower than anticipated. As the world's second-largest economy and the biggest importer of crude oil, China's economic health significantly influences global oil demand.
Brent crude futures saw a notable increase, settling up $2.45 (3.4%) at $74.29 per barrel. Similarly, U.S. West Texas Intermediate (WTI) crude climbed $2.30 (3.4%) to $69.42 a barrel. This rebound follows a sharp 4% decline on Monday, driven partly by concerns about the Chinese economy after the release of underwhelming economic data the previous week. Market analysts suggest that Monday's downturn was an overreaction to the negative news.
The rise in oil prices coincided with a broader market uptick, with equities also showing gains on Tuesday. However, despite the positive movement, market indicators suggest some lingering concerns about the long-term outlook for oil demand. Brent's six-month backwardation, a market structure where near-term futures contracts trade at a premium to longer-dated ones, narrowed to its lowest point since March, hovering around $1.10. This suggests a degree of uncertainty regarding whether demand will outpace supply throughout the year.
Adding to the complex market dynamics, increasing global oil supplies and ongoing demand growth concerns are weighing on prices. Investors are also keeping a close watch on the U.S. Federal Reserve's policy meeting concluding on Wednesday. While most anticipate the Fed will maintain current interest rates, especially given the minimal rise in U.S. consumer prices in May, the impact of any policy changes on the dollar and subsequently oil prices remains a key consideration. The European Central Bank is also expected to announce interest rate adjustments on Thursday, adding further to the market's anticipation.
The recent production cut announced by Saudi Arabia earlier in June provided only a temporary boost to oil prices, which has since been eroded by persistent demand worries. The Organization of the Petroleum Exporting Countries (OPEC) has maintained its 2023 global oil demand growth forecast for a fourth consecutive month, with a slight upward revision to its Chinese demand growth expectations. Market participants await the International Energy Agency's (IEA) monthly report, due Wednesday, for further insights. Preliminary data from the American Petroleum Institute suggests a rise in U.S. crude oil inventories, contrary to analysts' predictions of a decline. Official government data on stockpiles is also expected on Wednesday, which will further inform market sentiment.
