Oil edges up as Chinese encourage inflows into industrial commodities
London — Oil edged up on Wednesday as strong Chinese factory activity encouraged investor inflows into industrial commodities such as copper, although fast-growing US crude output tempered price gains.
China reported a 7.2% year-on-year increase in industrial output in the first two months of the year, roundly beating expectations and, in a dose of support for oil bulls, the data showed crude production fell 1.9%.
Copper and palladium, a key component in petrol-powered vehicles, both rose about 1%, which encouraged a bounce in the oil price.
Brent crude was last up 27c at $64.92 a barrel, off an earlier low of $64.43, while US West Texas Intermediate (WTI) futures were up 31c at $61.02 a barrel.
"We’ve seen copper breach above $7,000 [a tonne] ... and I think a lot of this is coming out of this really big beat in the Chinese industrial production, so general macro-flows, I would say, are reinforcing that bullish narrative," ING commodities strategist Oliver Nugent said.
China is the world’s largest importer of commodities and is the world’s biggest car market. Chinese oil production fell 1.9% in January and February to a daily rate of around 3.77-million barrels per day (bpd), while the amount of crude processed by refineries rose 7.3% to 93.4-million bpd, implying that its import demand will remain strong.
Brent crude has fallen by about 1% so far this week, as traders and investors have grown increasingly doubtful that co-ordinated supply cuts by oil cartel Opec and some of its partners might not be enough to offset the relentless rise in US crude production.
US oil production is expected to top 11-million bpd later this year. Rising output, as well as seasonally low demand, means that US crude inventories rose by 1.2-million barrels in the week to March 9, to 428-million barrels, the American Petroleum Institute (API) said on Tuesday.
Seasonal demand patterns for crude and refined products mean the market may only be weeks away from a run of declines.
"The total US crude, petrol and distillate stocks have increased in eight of the past 10 weeks, raising 24-million barrels in total since the start of the year. So if inventories declined last week it will definitely be a positive turn," SEB commodities strategist Bjarne Schieldrop said.
"We are now only two to four weeks away from when weekly oil inventory data will start to draw again, which should be supportive for oil prices."
Weekly US crude production figures will be published by the Energy Information Administration (EIA) later on Wednesday.