(Bloomberg) -- Oil headed for a weekly gain as optimism over China’s recovery offset concern that US monetary policy is set to tighten further.
West Texas Intermediate traded slightly weaker near $78 a barrel but is more than 2% higher this week after a three-day run of gains. China’s rebound since it abandoned Covid Zero has reignited hopes of a banner year for demand in the world’s top oil importer. Data this week pointed to a surge in activity, and Saudi Aramco described Chinese consumption as “very strong.”
In the US, meanwhile, stronger-than-expected readings on the economy could prompt the Federal Reserve to raise interest rates more than previously expected, policymakers said. That could boost the US dollar, dulling the appeal of commodities priced in the currency, while risking a slowdown or recession.
Oil has eased slightly this year, while holding within a relatively tight $10 range. In addition to trends in the US and China, investors are also tracking Russian energy flows, which have proved to be more resilient than expected despite Western sanctions imposed amid the war in Ukraine. The OPEC+ producer plans to raise diesel exports to a new monthly high in March.
Some of the market’s key metrics are signaling renewed strength. The prompt spread for global benchmark Brent — that’s the difference between its two nearest contracts — has almost doubled this week to 64 cents a barrel in backwardation. US benchmark WTI’s three-month spread flipped to backwardation this week for the first time this year.
“The broader macroeconomic sentiment is the leading driver for oil prices right now,” said John Driscoll, director of JTD Energy Services Pte. Strengthening time spreads are also a supportive demand indicator, he added.
More clues on China’s outlook will come this weekend when the annual National People’s Congress kicks off. Premier Li Keqiang will deliver the government work report on Sunday to outline a target for gross domestic product growth, with economists expecting a goal of more than than 5%. Last year, the economy expanded just 3%, missing the official plan by a wide margin.