Oil prices settle higher on hopes of China demand rebound

A view shows Chao Xing tanker at the crude oil terminal Kozmino on the shore of Nakhodka Bay near the port city of Nakhodka, Russia August 12, 2022. REUTERS/Tatiana Meel

Jan 17 (Reuters) - Oil prices settled higher on Tuesday in choppy trading after China posted weak but expectation-beating annual economic growth data and on hopes that a recent shift in its COVID-19 policy will boost fuel demand.

Brent crude futures settled up $1.46, or 1.7%, to $85.92 while U.S. West Texas Intermediate (WTI) crude settled up 32 cents, or 0.4%, at $80.18. There was no settlement on Monday because of a U.S. public holiday for Martin Luther King Day.

China's gross domestic product expanded 3% in 2022, missing the official target of "around 5.5%" and marking the second-worst performance since 1976. But the data still beat analysts' forecasts after China rolled back its zero-COVID policy in December.

"China is making the best out of their economic data, and it's fair to say it could have been worse," said Bob Yawger, director of energy futures at Mizuho.

However, New York state manufacturing contracted sharply in January as orders collapsed and employment growth stalled, and little improvement was expected over the next six months, according to a Tuesday Federal Reserve survey.

"The question is how does the Federal Reserve respond to such a mixed bag of economic performance," said John Kilduff, partner at Again Capital LLC in New York.

Oil was bolstered by a weaker U.S. dollar, which fell against most major currencies on Tuesday due to expectations of a possible Bank of Japan policy shift that could be a precursor to adopting a tighter monetary policy.

A weakening dollar makes greenback-denominated oil less expensive for other currency holders.

Data released on Tuesday showed China's oil refinery output in 2022 had fallen 3.4% from a year earlier for its first annual decline since 2001, though daily December oil throughput rose to the second-highest level of 2022.

"The country's crude oil imports were up 4% in December and a considerable demand boost for transportation fuel ... is anticipated when the Lunar New Year begins on Sunday," said PVM analyst Tamas Varga.

The Organization of the Petroleum Exporting Countries (OPEC) said in a monthly report that Chinese oil demand would grow 510,000 barrels per day this year, while it kept its 2023 global demand growth forecast unchanged at 2.22 million bpd.

A monthly report from the International Energy Agency (IEA) on Wednesday will shed more light on the strength of oil demand while recession fears loom.

In a survey released at the annual World Economic Forum in Davos, two thirds of private and public sector economists polled expected a global recession this year.

A survey of chief executives' views by PwC was the gloomiest since the poll was launched a decade ago.

Additional reporting by Shadia Nasralla in London, Sonali Paul in Melbourne and Muyu Xu in Singapore Editing by David Goodman, Will Dunham and Bernadette Baum

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Reports on oil and energy, including refineries, markets and renewable fuels. Previously worked at Euromoney Institutional Investor and CNN.