Oil steady as US crude stocks fall and China signals demand recovery

Singapore — Oil prices were in a holding pattern on Thursday, as a larger-than-expected draw in US crude stocks and hopes for China demand contended with worries that more aggressive US interest rate rises would slow economic growth and dent oil consumption.

Brent crude futures had edged up by 2c to $82.68 a barrel by 4am GMT, while US West Texas Intermediate (WTI) crude futures eased by 1c to $76.65 a barrel.

On Tuesday, oil futures fell more than 3% and posted their largest daily fall since early January after comments by US Federal Reserve chair Jerome Powell that the central bank would likely need to raise interest rates more than expected in response to recent strong data.

“Oil prices are still under the influence of Powell’s hawkish tone recently, and the increasing possibility of another 50-basis-points hike (bps) rather than a 25bps one,” said Suvro Sarkar, lead energy analyst at DBS Bank.

“Oil prices will be caught in the tug of war between sentiment surrounding rate hikes and inflation targeting on the one hand, and China reopening on the other for much of the year, at least the first half.”

While China’s crude oil imports fell 1.3% in the first two months of 2023 from a year earlier, analysts pointed to accelerating imports in February as a sign that fuel demand was rebounding after Beijing scrapped Covid-19 controls.

At a conference in Houston on Tuesday, the secretary-general of the Organization of the Petroleum Exporting Countries (Opec) said China’s oil demand would grow 500,000 to 600,000 barrels a day in 2023, and the organisation was “quite optimistic, cautiously”.

Meanwhile, data from the US Energy Information Administration (EIA) showed on Wednesday that US crude stocks fell 1.7-million barrels last week, defying analysts’ expectations for a build of 395,000 barrels and ending a 10-week streak of inventory builds.

Adding to demand concerns, however, US gasoline stocks fell by 1.1-million barrels, according to official data, less than the 1.9-million barrel drawdown analysts had forecast, and distillate inventory grew by 138,000 barrels, compared with expectations for a 1-million-barrel drawdown.

Despite the EIA inventory report posting the first crude draw of the year, crude demand uncertainty over the short term is “keeping oil prices heavy”, said Oanda senior analyst Edward Moya in a note.

“Until we see clear signs of China’s recovery gaining steam, oil prices look like they want to stay heavy.”

Reuters