China’s post-Covid reopening to roil energy prices

BLOOMBERG

China’s reopening after three years of Covid Zero is the main source of optimism for commodities markets wracked by a string of bank failures and slowing global growth.
Wood Mackenzie Ltd has run the numbers on what it could mean for prices, under a base case scenario where the economy expands at 5.5% this year, and a more bullish forecast that the government pulls out the stops to engineer growth of 7%.
Beijing’s habit of over-delivering on its targets could yield significant upside to energy prices that are “leveraged to a super-charged Chinese bounce,” the research firm. Central to the bullish argument is the government engaging in a massive push on infrastructure investment, which raises construction growth to 10.7% in 2023 from Woodmac’s base-case estimate of 3.2%.
That would ripple through into the global economy, lifting growth to 2.6% from 2.2%. In the bullish scenario, Chinese oil demand would expand by 1.4 million barrels a day, about 400,000 barrels more than the base case. That could add $3 to $5 a barrel to its forecast of Brent averaging $89.40 a barrel in 2023, Woodmac said.
The impact on gas markets would be more pronounced as stronger Chinese demand for seaborne cargoes drives up “competition for supply at a time when no new projects are expected to be commissioned before 2025,” according to the report.