Crude oil prices have found a floor and the only way they can go from here would be higher. That’s according to RBC commodity analysts Helima Croft and Michael Tran, as quoted by Bloomberg.
“We remain constructive on the fundamental framework, and in fact, we would not be the least bit surprised if the lows of the year end up being the US$72/bbl (per barrel) print that we saw three weeks ago on the second trading day of the year,” they said, adding that China’s reopening had not yet been fully priced in to the oil market.
This might sound a bit surprising given that China’s reopening is being cited as the biggest reason behind oil prices’ recent climb upwards and as the biggest tailwind for them going forward.
Yet with reports coming in about still high infection rates in the world’s largest importer of crude oil, it may well be the case that China’s reopening has not yet been priced in to the oil market.
“We don't think that there's much that's being priced into the oil market as a function of China's reopening yet and the reason why is because the consumer path towards normalization is still going to be quite bumpy,” Michael Tran told Bloomberg in an interview.
This path to normalization will likely be marked by an increase in imports, which are still about 1.5 to 1.7 million bpd below where they were pre-pandemic, according to Tran.
Not all of these volumes need to return for oil prices to spike, the analyst noted, however. “The key idea here is we don't need to get all of that back for the market to rally significantly. If you start picking up a quarter million, half million, [or] one million barrels a day over the course of the next several months, you better bet that this is going to be an oil market that moves higher,” Tran told Bloomberg.