Oil prices rose on Wednesday driven by signs that China’s virus outbreak could be easing, raising hopes of stronger demand in the world’s second-largest, oil-consuming country.
International benchmark Brent crude was trading at $112.47 per barrel at 0709 GMT for a 0.48% increase after closing the previous session at $111.93 a barrel.
American benchmark West Texas Intermediate (WTI) was at $110.58 per barrel at the same time for a 0.86% gain after the previous session closed at $109.63 a barrel.
China's strict COVID-19 measures to curb omicron-driven outbreaks, particularly in the financial hub Shanghai, have taken a toll on the world’s second-largest economy.
In the last six months in China, mass testing, curfews, travel restrictions and quarantine measures have hit economic activities as well as social life, particularly in metropolitan cities like Shanghai, Beijing and Xinjin, where populations are dense.
Shanghai reported a 51% drop in new coronavirus infections on Tuesday from a day earlier, with zero cases found in the community. This infection rate moved the city closer to meeting a threshold for the relaxation of growth-crippling COVID restrictions.
It remains unclear how China will adopt its combat strategy over time, however, currently declining cases in Shanghai prompted hopes for better oil demand in the country in support of higher oil prices.
Demand recovery hopes were also bolstered after the American Petroleum Institute (API) predicted late Tuesday a drop in US crude oil stockpiles of 2.44 million barrels, compared to the market expectation of a rise of 1.5 million barrels.
A significant drop in inventories indicates an increase in crude demand in the US, the world’s largest oil consumer, assuaging market concerns over dwindling demand.
Tightness in the diesel and gasoline markets is also supporting sentiment, ANZ commodity strategist Daniel Hynes said in an e-mailed note.
“However, prices came under pressure following reports that the US is allowing Chevron to negotiate its oil licenses with Venezuela’s national producer,” he said.
Although the sanctions relief does not allow Chevron to enter into any new agreements with Venezuelan state-owned oil and natural gas company, PDVSA, or begin new activities in the country, it places downward pressure on prices, while increasing expectations of the addition of more barrels on the market.
More price pressure came as EU countries failed to come to a common consensus over banning Russian oil exports, while some companies chose to open temporary accounts with Gazprombank to comply with Russian demands for payment in rubles.
Meanwhile, the European Commission issued new guidance on Tuesday on how EU companies can pay for Russian gas in rubles without violating the bloc's sanctions.
By Sibel Morrow