Picture: REUTERS/DAVID M PARROT
Picture: REUTERS/DAVID M PARROT

London — Oil prices rose on Wednesday on improving factory activity in China and drawdown in US crude inventories, both indicating an economic recovery and rise in energy demand despite surging coronavirus infections around the world.

Brent crude was up 90 US cents, or 2.2%, to $42.17 a barrel at 8.11am GMT, and US crude was up 90c, or 2.3%, at $40.17 a barrel.

US crude and petrol stocks fell more than expected last week, while distillate inventories rose, data released by the American Petroleum Institute (API) late on Tuesday showed.

“The crude numbers are clearly constructive; however, we will need to see what the more widely followed EIA numbers show,” ING said

Official inventory data from the US Energy Information Administration (EIA) is due out later on Wednesday.

Sentiment was also boosted by signs that China's factories slowly gathered steam in June after the government lifted lockdown measures.

The manufacturing purchasing managers index (PMI) rose to 51.2 in June, from May’s 50.7. The 50-mark separates growth from contraction on a monthly basis.

A surge in new infections in the US has worried some investors, but most are betting this will not be enough to derail a broader rebound in the global economy.

The US PMI, due later on Wednesday, is forecast to show that activity in June continued to recover from an 11-year low in April.

Investors also await the closely-watched US nonfarm payrolls report on Thursday, which is expected to show the economy added three-million jobs in June.

Also supporting prices was a drop in output from oil cartel Ope and its allies, known as Opec+, following an agreement to curb supplies.

“Although there is still the danger of demand outages in view of increased new cases of Covid-19, Opec+ seems to have the market under control at the moment,” said Commerzbank analyst Eugen Weinberg.

Opec produced an average of 22.62-million barrels per day (bpd) in June, a Reuters survey found, down 1.92-million bpd from May's revised figure.

Top oil exporter Saudi Arabia may raise its August official selling price (OSP) for crude sold in Asia, hiking for a third straight month due to rising Middle East benchmarks and a rebound in Asian refining margins, industry sources said.

Reuters

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