Oil markets have reasons for higher prices in principle. China’s re-opening should stimulate demand, OPEC is expected to keep production levels unchanged, hopes of a dovish Fed, and the EU ban on Russian refined products is due to come into effect on February 5. So, should all this keep oil markets supported over the next few weeks?

Fed risk

The first risk to higher oil markets is the Fed meeting tonight. Expectations are set for the Fed to hike by 25bps, but the forward guidance is still unclear. Will the Fed signal a coming pause and potential cut? Or will the Fed surprise markets and signal that it sees the terminal rate going higher to 5.5% this year and staying there all year? The more dovish the decision the better that should be for oil as a weaker USD lifts oil prices.

China re-opens

Service PMI data for January from China came in higher than expected with an expansionary reading of 54.4, well up from the 47.3 expected. This bodes well for China’s re-opening narrative. Yes, this was boosted by the Lunar New Year holidays, but this is clearly a country starting to operate in a pre-Covid way. Over the medium term, this bodes well for demand levels for oil. IMF raised its 2023 global growth forecast to 2.9% from 2.7% citing resilience in advanced economies and China’s reopening.

OPEC+ meeting

There is no change expected in this meeting today. The sources out prior to the meeting all point to no change in production levels from OPEC+ JMMC panel due to current market uncertainties.

Russian oil ban

Russia intends to expand diesel exports in February despite the EU ban with Feb seaborne diesel exports planned at 2.74mln. Furthermore, Russian oil exports by sea rose to a 2-month high of 3.2mln bpd in the second week of January after falling to an average of 2.6mln bpd in December. So, how effective will the EU ban be? Where will this extra supply from Russia end up as in the past the EU has been the main market? The impact of this ban is not yet clear.


There are reasons for oil to remain supported and there is key technical support on the higher time frames, so the risk can be easily limited for traders looking at seeing whether oil markets have some upside ahead of them despite the uncertainties that are clearly there.