Oil continues to trade in red zone waiting for new pulse
2023.03.06 11:43
Oil continues to trade in red zone waiting for new pulse
By Kristina Sobol
Budrigannews.com – Oil prices fell on Monday as a result of disappointment after the Chinese government revealed a modest goal for economic growth. This cast doubt on the likely extent of the increase in crude demand.
The Brent contract fell 1.2 percent to $84.79 a barrel, while U.S. crude WTI futures traded at $78.73 a barrel.
At the start of the annual session of the National People’s Congress, officials from the Chinese government made an announcement over the weekend that they wanted the economy to grow by 5% in 2023.
This year’s goal was the lowest it had been in more than 30 years. It was lower than the previous year’s goal of about 5.5% and also fell short of expectations that had been raised in response to the impressive business activity numbers from last week.
“From a historical perspective, the fiscal deficit last year was extremely high, at 8% to 9% per GDP, so the primary reason for this lower target seems obvious.” “Taking advantage of the economic recovery, the government would like to slow down the increase in the fiscal deficit,” stated analysts at ING in a note.
Hopes for a significant increase in demand from the world’s largest crude importer between now and the end of the year were dashed by this news.
However, that official forecast could still have some upside, as UBS earlier on Monday increased its estimate of China’s economic growth to 5.4% in 2023 from 4.9% previously.
The Swiss banking giant’s analysts pointed to an anticipated boost in consumer confidence and a stronger-than-anticipated recovery following the removal of COVID restrictions.
The Wall Street Journal’s report last week, which suggested that the Organization of Petroleum Exporting Countries’ unity is beginning to break down, added to the uncertainty on Monday.
The WSJ reported that the United Arab Emirates is considering leaving the OPEC+ group, seeking the freedom to use the additional capacity it has built in recent years. This comes as Russia has announced a cut in output to reduce the discount it must accept on its crude exports.
Since the beginning of the year, traders have weighed the likely rise in demand from China against expectations of additional interest rate hikes from and that could have an impact on future economic activity. As a result, oil has traded in a relatively narrow range.
On Monday, there was some encouraging news, with Saudi Arabia increasing the majority of its April prices for crude shipments to Asia and Europe.
ING added:
“This is the second month in a row of price increases and reflects the optimistic demand sentiment.”
