Oil Prices Rise as China's Economy Grows Faster Than Expected in Q1

China's robust Q1 GDP growth of 5.3% boosts oil prices, but mixed economic data and Middle East tensions temper market enthusiasm, signaling ongoing uncertainties in the global oil market.

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Mazhar Abbas
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Oil Prices Rise as China's Economy Grows Faster Than Expected in Q1

Oil Prices Rise as China's Economy Grows Faster Than Expected in Q1

Oil prices edged higher on Tuesday after data showed China's economy expanded at a faster-than-expected pace of 5.3% in the first quarter of 2024. The stronger growth in the world's second-largest economy and top oil importer suggested a positive outlook for oil demand, providing support for crude prices.

Brent crude futures for June delivery rose 0.5% to $90.58 a barrel, while U.S. West Texas Intermediate (WTI) crude futures for May delivery climbed 0.6% to $85.90 a barrel. The gains were attributed to China's solid economic performance, which exceeded analysts' forecasts of 4.5% growth for the January-March period.

China's first-quarter GDP reached 29,629.9 billion yuan, driven by rapid growth in the services sector and increased overseas demand. The agricultural sector witnessed steady expansion, with crop farming up 3.8% and animal husbandry growing steadily. Industrial production also registered fast growth, with the value-added of industrial enterprises above the designated size increasing by 6.1%.

However, despite the overall positive economic data, some indicators suggested that China's domestic demand remained relatively weak. Retail sales and industrial output rose less than expected in March, and the property sector continued to face challenges, with home prices and property investment declining.

Why this matters:In the world's largest consumer of oil and base metals, China's economic growth and domestic demand have significant implications for global commodity markets. The trajectory of China's post-pandemic recovery and the effectiveness of government stimulus measures will play a crucial role in shaping the outlook for oil prices and industrial metals in the coming months.

Analysts noted that while China's stronger-than-expected GDP growth was generally bullish for oil prices, the mixed economic data tempered the market's enthusiasm. "The data suggests sustained strong demand for oil in China, supported by the Lunar New Year holiday in the first two months of the year," said Hiroyuki Kikukawa, general manager of research at Nissan Securities.

Kikukawa added that going forward, some expect China's oil demand growth to slow down due to the rise of electric vehicles and high-speed rail, but a recent oil import deal with Niger suggests expectations of sustainable oil demand growth in the country.

Investors also kept a close eye on tensions in the Middle East, as Israel's war cabinet met to discuss a response to Iran's missile and drone attacks over the weekend. While U.S. officials expected Israel's response to be limited in scope, concerns remained about a potential escalation in the region that could disrupt oil supplies.

China's apparent oil demand increased by 1.03% year-on-year in March to 14.75 million barrels per day, according to data from the Customs General Administration cited by Bloomberg. The country's strong economic growth in the first quarter, coupled with expectations of sustained oil demand, continues to provide support for crude prices. However, the mixed economic indicators and geopolitical tensions in the Middle East serve as reminders of the ongoing uncertainties in the global oil market.

Key Takeaways

  • China's Q1 2024 GDP grew 5.3%, exceeding expectations of 4.5%.
  • China's strong economic growth supports oil demand and prices.
  • Mixed economic data, including weaker retail sales and property sector, tempers enthusiasm.
  • Geopolitical tensions in the Middle East raise concerns about oil supply disruptions.
  • China's oil demand increased 1.03% in March, but long-term outlook uncertain.