Oil Prices Jump $2 Due to Rising Demand in 2023

OPEC and the International Energy Agency (IEA) foresee a rebound in demand next year, and U.S. interest rate hikes are expected to moderate further in sync with decelerating inflation.

Brent crude futures closed at $82.70 a barrel, up $2.02, or 2.4%, while U.S. West Texas Intermediate (WTI) crude futures settled at $79.40, up $1.94.

Both contracts increased due to a jump in diesel futures in anticipation of cold weather at the end of the year.

The Brent contract has reverted to a backward market structure in which front-month loading barrels sell at a premium to later deliveries, signaling that oversupply concerns are decreasing.

Last week, the structure reverted to contango, with front-month deliveries becoming less expensive than later-loading months.

A leak and outage of TC Energy (NYSE:TRP) Corp's Keystone Pipeline, which transports Canadian petroleum to the U.S., have boosted oil prices.

According to officials, cleanup will take several weeks.

Last week, U.S. crude oil stockpiles increased by more than 10 million barrels, the highest since March 2021, due to releases from the Strategic Petroleum Reserve and a fall in refinery operations. 

OPEC projects that oil consumption will climb by 2.25 million barrels per day (bpd) to 101.80 million bpd in 2023, with significant upside from China, the world's largest importer.

The IEA raised its 2023 oil demand growth projection to 1.7 million bpd, for a total of 101,6 million bpd, in anticipation of a recovery in Chinese oil consumption in 2024, after a decline of 400,000 bpd in 2022.

According to the figures, road and aviation traffic in China have rebounded.

"The climate remains conducive for triple-digit prices... Recent volatility gives an excellent entry point. Next quarter, balances may be looser, but by 2Q, a new price rally will be upon us "Oswald Clint, a Bernstein analyst, noted.

The Federal Reserve lifted its benchmark overnight interest rate by 50 basis points on Wednesday, a drop from the 75-basis-point increases it adopted at its previous four policy meetings.