Oil prices might have already hit a floor for the year, according to Royal Bank of Canada analysts Helima Croft and Michael Tran, who anticipate commodity prices will get a boost from China’s economic re-opening.

“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,” Croft and Tran said in a note to clients on Sunday.

“Is this a bold call less than a month into the calendar year? Maybe, but China‘s re-opening is hardly being priced in to the oil market, yet.”


“China's reopening is unequivocally bullish for all commodities, [including the] entire commodity complex,” Tran said in an interview with BNN Bloomberg Monday.

It is also important to note that oil prices are actually down on the year, according to Tran.

“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,” he said.

Croft and Tran expect WTI prices will average around US$92 per barrel for the year.

China’s focus on kick-starting the economy will result in growth for the industrial metals sector, either through manufacturing or building infrastructure, they said. 

“As such, commodity investors see the metals trade as the first derivative of the re-opening, while individual consumer-linked commodities tied to societal behaviour (like the oil complex) have lagged the space, for now, but will play catch up once societal behaviour shows a steadfast degree of strength,” it said in the report.

However, Croft and Tran said there’s still uncertainty around how long it will take for societal behaviours to return to normal.

“Following several long years of lockdown, the COVID-19 fear factor is likely high, meaning that a rebound in consumer behaviour is potentially subject to fits and starts, particularly if COVID­-19 case counts and hospitalizations spike post Lunar New Year,” they said. 

For an oil market rally to occur, Tran said China’s oil imports do not have to return to full capacity. He said there are still 1.5 to 1.7 million barrels per day of crude oil imports that are absent from the market due to the fact that China “hasn’t ramped up yet.”

“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,” he said.