Oil prices up on prospects for Chinese demand, as global supplies look to tighten

“The reality is that Hamas is not saying that they’ve agreed to anything yet,” said Phil Flynn, senior market analyst at The Price Futures Group, in a daily note. 

Hostilities have so far not crimped the flow of crude from the Middle East, though concerns over a wider conflict have provided some underlying support to prices and have triggered occasional bouts of volatility.

Meanwhile, backwardation in both Brent and WTI oil futures suggest there is a tightness of supply for oil around the globe, said Flynn. Backwardation refers to a situation in crude contract values where prices for oil for delivery in the near future are higher than those for later deliveries.

The squeeze in supply seems to be due to a “combination of the fact that we’re seeing better than expected demand out of China and India, as well as delays in Red Sea cargoes due to the attacks by the Houthi rebels,” Flynn said.

On top of that, the reports that the G20 is saying that the chances of a soft landing in the global economy are looking more likely is raising demand prospects for oil and gas, he said.

“One of the reasons why oil prices were subdued was the market was betting that we were headed towards a global recession,” Flynn said. “If that does not happen…we see a situation where the supplies will tighten significantly in the next quarter.”

Colin Cieszynski, portfolio manager and chief market strategist at SIA Wealth Management, told MarketWatch that the recent support for oil prices has been coming from improving Chinese demand expectations.

Since the government undertook stimulus measures and interest rate cuts, China-sensitive markets including equities and crude oil have been improving, he said.

There “are suggestions that China has been buying crude cargoes at an accelerated pace since the mid-February holiday, while also increasing its term supplies from Saudi Arabia in March,” said Ewa Manthey and Warren Patterson, commodity strategists at ING, in a note.

“The increased purchase from the country could also be attributed to the advance buying made ahead of the maintenance work when refiners typically reduce imports,” they wrote.

Elsewhere, news reports said Russian Prime Minister Mikhail Mishustin approved a six-month ban on gasoline exports beginning March 1.

A ban is probably due to the refinery outages in Russia, said Barbara Lambrecht, commodity strategist at Commerzbank, in a note.

Russian gasoline exports, however, are low, she said, which means the ban is unlikely to significantly affect supply on the global market. As for the European market, imports of Russian petroleum products have already been sanctioned for around a year, with a few exceptions, she noted.