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Crude oil prices have started 2023 with a rally. A major driver for crude oil demand is back and its impact has been witnessed with crude oil prices touching a 7-week high. With the optimism around China’s economic revival and demand returning to the market, oil prices have gained momentum – touching record levels in the last seven weeks.

China is a top oil importer in the world, and the weak economy over the past couple of years has had a major impact on global oil consumption due to its Zero-COVID policy and related restrictions and lockdowns. Removal of COVID curbs and a marked pick-up in travel in China has generated optimism. And the likely economic revival of China is hoped to lift global demand including that of crude oil.

Another driver for crude oil prices recently has been the prospects of a tighter oil market with existing as well as expected sanctions on Russian crude oil. The EU and the G7 coalition are set to cap Russian refined petroleum product prices in early February further. ‘

Even though the oil prices have thinned due to the two-week Chinese New Year holiday, the outlook is overall optimistic. Amid all the volatility in the oil market, the role of China in driving prices is certain, which is definitely going to be robust in 2023 versus 2021 and 2022. IEA in its recent oil market report highlights that global oil demand is set to rise to an all-time high in 2023, and China will drive almost half of the global demand growth despite the uncertainty regarding the speed and shape of its reopening. OPEC in its monthly oil market report also shows it’s cautious optimism regarding economic recovery and hence increased demand for oil in China which includes increased fiscal spending to support transport, manufacturing, and construction.

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