Oil prices gain by over 1% amid concerns about declining supply

Oil prices increased by more than 1% on Monday. The increase comes amid optimism over the growing demand in China and the production curbs by some of the largest producers. Russia is also making plans to rein in the supply

Oil prices increase by over 1%

Oil prices have been making a healthy recovery over the past few weeks. Brent crude oil has increased by around 1.3% to $84.07 per barrel. Additionally, the US West Texas Intermediate crude for March that expires on Tuesday increased by 85 cents, equivalent to 1.1% or $77.19.

The trading volumes remained silent on Monday as the US markets closed because of a US market holiday dubbed President’s Day. The crude benchmarks settled for $2 lower on Friday for a drop of around 4% over the past week after the US reported higher inventories for crude and gasoline.

According to analysts, there are expectations that oil imports in China will reach a record high this year. The high imports will meet the increased demand for transportation fuel because new refineries will be available.

The senior markets analyst an OANDA in London, Craig Erlam, commented on this development, saying that “the optimism around China today may be responsible for the gains we’re seeing in crude, which would make a lot of sense given it’s the world’s largest importer and expected to recover strongly from the COVID transition.”

China and India’s demand for crude oil

There has been a notable increase in demand for crude oil from China and India. The two countries have become leading buyers of Russian crude oil amid a wave of Western sanctions imposed against Russian oil. Recently, embargoes and price caps were imposed on Russian oil because of the Ukraine invasion.

India ranks as the third-largest oil importer globally. According to government data, crude imports in the country reached a six-month high in January. In China, the commerce ministry has contacted independent oil refiners to discuss the deal’s details with Russia. The deals are believed to have saved Chinese buyers billions of dollars.

One person with close information about the deals said that the Chinese government wanted to determine how much the independent refineries could buy and their appetite for these imports.

Russia plans to limit production by 500,000 barrels daily, around 5% of its total output. The limits will be implemented in March, and they come after the West set price caps for Russian oil and oil products.

Russia is also a member of OPEC, whose allies agreed to cut oil production by 2 million barrels per day until the end of the year. According to Goldman Sachs, any oil supply shortages will likely raise the prices to $100 per barrel by the end of the year. The investment bank also said that the prices would increase when the market pivots to the deficit and as OPEC ensures that the supply fails to meet demand.