Oil prices Edge Higher on China Energy Demand Concerns

Oil prices rose on Tuesday, recouping earlier losses, as falling temperatures in China, the world’s biggest energy consumer, revived concerns about its ability to meet heating demand needs amid power and coal shortages.

Brent crude rose 24 cents, or 0.3%, to $84.57 a barrel by 0541 GMT after falling 0.6% on Monday. The contract is still up nearly 7% this month.

U.S. West Texas Intermediate futures gained 35 cents, or 0.4%, to $82.79 a barrel, having risen 0.2% in the previous session and nearly 10% this month.

oil Chart
U.S WTI Performance Chart

Brent fell on Monday after China released growth figures that disappointed the market but with temperatures falling as the northern hemisphere winter approaches and heating demand increasing, prices of oil, coal and natural gas are likely to remain elevated, traders and analysts said.

Colder weather has already started to grip China, with the temperature forecast to fall to near freezing in northern areas, according to AccuWeather.com.

“Tightness in energy markets meant supply side issues remain prevalent and commodities prices remain supported,” said an energy derivatives trader based in Singapore.

Coal futures in China rose as much as 7.8% on Tuesday, while riskier assets like equities were also higher. The rising coal and natural gas prices in Asia are expected to cause some end-users to switch to lower-cost oil as an alternative.

However, the power crunch that is sending prices higher is also hurting Chinese economic growth, which fell to the lowest in a year, according to official data on Monday. China’s daily crude oil processing rate also fell again last month to the lowest level since May last year.

Helping keep a lid on prices, U.S. oil output is set to rise. Production in the largest shale formation in the U.S., the world’s biggest oil producer, is expected to gain further next month, according to an official report.

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