Oil prices fell on Monday, but the anticipation that China's lifting of COVID limits will increase fuel demand in the biggest crude importer of the world kept prices close to 2023 highs, which were attained after a spike in prices last week.
On Monday, prices stayed close to their 2023 highs. The outlook for transportation fuels is improved by expectations that travel would pick up again for the Lunar New Year vacation at the end of the week. China's crude imports increased by 4% year-on-year in December.
"After the scale of the move last week, we could be seeing some profit taking," said Warren Patterson, ING's Head of Commodities Strategy, adding that thinner trading volumes would make any selling appear to be more pronounced.
Brent crude was down 64 cents, or 0.8%, to $84.64 a barrel at 0525 GMT, while U.S. West Texas Intermediate crude was trading at $79.30 a barrel, down 56 cents, or 0.7%, on thin trade during a U.S. holiday.
Both contracts gained more than 8% last week, the most in a single week since October, which may have prompted some short-term selling to lock in profits from the rise higher.
According to ANZ analysts, traffic volumes in China are continuing to climb from historic lows following the relaxation of COVID-19 restrictions, resulting in higher demand for crude and oil products.
According to trading sources and analysts, gasoline will lead a 40% decrease in China's exports of refined oil products from December to January as a result of the improvement in local demand.
"While there is still plenty of optimism around Chinese demand, in the near term the oil market remains relatively well supplied," ING analysts said in a note.
Despite U.S. sanctions, Iranian oil exports reached new highs in the latter two months of 2022 and are off to a solid start in 2023, with increased shipments to China and Venezuela.
This week, the Organization of Petroleum Exporting Countries and the International Energy Agency will release their monthly reports, which investors will closely monitor for global demand and supply forecasts.
Investors will also be watching a major Bank of Japan (BOJ) meeting this week to see if the BOJ will defend its massive stimulus program.
According to companies that track the movements, exports have reached their highest level since 2019. This is amid headwinds such as a halt in nuclear discussions and competition from discounted Russian crude.