Major analysts have suggested that due to China’s recovery from years of Covid lockdowns, the price of oil may rise to nearly $90 a barrel this year.
In a report by the commodities consultancy firm Wood Mackenzie, they predict that the normalization of transportation in China will lead to a robust increase in worldwide oil demand in 2023. According to their base case, the global benchmark oil price, Brent crude, which currently stands at about $76 per barrel, will increase to an average of $89.40 per barrel later this year.
Ann-Louise Hittle, who is the head of macro oils at Wood Mackenzie, has stated that the resumption of activities in China following their Zero Covid policy in 2022 will result in a one million barrel per day increase in oil demand out of the expected 2.6 million barrel per day gain this year.
The forecast is dependent on the assumption of a 5.5 per cent growth rate in China this year. However, the consultancy believes it is conceivable that China’s growth rate could actually be higher, potentially reaching 7 per cent in 2023.
According to the consultancy, if China’s growth rate exceeds expectations and reaches 7 per cent this year, there could be an additional 400,000 barrels per day of demand due to increased construction activity. This could lead to an increase of $3-$5 per barrel in oil prices.
Brent crude’s price skyrocketed to over $100 per barrel last year after Russia’s invasion of Ukraine. However, in the second half, it fell due to concerns about a global economic slowdown and the impact of lockdown restrictions in China, which diminished fears of a shortfall. Wood Mackenzie suggests that if the faster-than-anticipated 7 per cent growth rate in China materializes, it could dramatically reshape short-term commodity supply and prices.
