With word that China is on track for accelerated economic growth and Saudi production is being lowered from a 30 year high, oil is poised for its longest weekly rising streak in 14 months.
The International Energy Agency’s Oil Market Report for January warns against making hasty interpretations about the shifts in Saudi production and Chinese demand. It noted that the dip in Saudi supply seems driven less by price considerations than by the weather.
“A dip in [Saudi] air conditioning demand – as well as reduced demand from refineries undergoing seasonal maintenance – likely goes a long way toward explaining reduced output,” the report said. “Nothing for the global markets to worry about.”
The report also cautioned that although manufacturing has picked up in recent months in China, elevated debt levels and economic uncertainties could lead to swings in Chinese demand, in both directions, throughout 2013.
Amid the shifts in Saudi production and Chinese demand, crude prices built on their late-2012 gains to hit three-month highs at the start of this year. While the Oil Market Report noted that the rally looked overdone, it said that higher oil prices are underpinned by the reduced risk of a recession in the United States.
The Oil Market Report highlighted that with the onset of winter, inventories of heating fuels remain low in the OECD. In the Western Hemisphere, levels are below seasonal norms, but other regions have stocks at normal levels.