(Bloomberg) — Oil rose as data showing a strong recovery in Chinese factory activity bolstered the outlook for energy demand in the world’s biggest crude importer and offset concerns about rising prices. US inventories
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West Texas Intermediate advanced towards $78 a barrel, erasing a previous decline. China’s manufacturing activity posted the biggest monthly improvement in more than a decade in February after Covid Zero was abandoned last year. The jump in oil came along with gains in other commodities such as copper.
There were also positive signals from India. Domestic sales of refined petroleum products in the South Asian nation, a major importer of crude oil, soared in February, with double-digit increases for gasoline, diesel and jet fuel. In addition, Indian buyers are joining Chinese consumers in receiving shipments of oil from Russia’s Far East.
Crude remains lower this year as the prospect of tighter US monetary policy and rising inventories have so far outweighed optimism that Chinese demand will strengthen as it recovers activity. Russian flows are also in the spotlight as Western sanctions and bans linked to the war in Ukraine tighten. Although Moscow has largely managed to maintain exports by finding new buyers, there are signs of friction in markets like India, a key outlet for Russian crude.
“Prices could get support from signs of an economic rebound from the world’s largest oil importer,” said Ravindra Rao, head of commodities research at Kotak Securities Ltd. in Mumbai, referring to China. “The nation’s crude consumption is expected to hit pre-pandemic highs and could contribute the bulk of global oil demand in 2023.”
Looking ahead to March, Russia has said it planned to cut supply by 500,000 barrels a day starting this month, presenting that decision as retaliation against sanctions. However, the European Union said Moscow had been forced to cut, while RBC Capital Markets said the decision may reflect the difficulty in maintaining production in challenging fields.
“The big question for oil markets in the coming months will be to what extent Russian oil and refined products exports will be affected,” said Vivek Dhar, director of mining and energy commodities research at Commonwealth Bank of Australia. “It is worth noting that markets have generally overestimated the extent of Russian oil supply disruptions since the Ukraine war began.”
In the US, commercial reserves have expanded significantly in recent months, signaling ample crude supplies in the world’s largest economy. On Tuesday, the American Petroleum Institute reported that US inventories rose by 6.2 million barrels last week, according to people familiar with the figures. An official breakdown arrives later on Wednesday.
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