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Oil Climbs as Easing Lockdown in Chinese City Sparks Demand Hope

·2 min read

(Bloomberg) -- Oil climbed on optimism that demand prospects in China may brighten as one of its megacities loosens lockdown restrictions.

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West Texas Intermediate futures settled at $88.48 a barrel. Brent rose 1% to settle at just over $94. Chengdu is easing Covid restrictions gradually, lifting the demand outlook in one of the world’s largest crude consumers. The understanding that the Biden administration would consider refilling the Strategic Petroleum Reserve if prices fall below $80 a barrel further supported the rally.

“I think we see a bounce back for the rest of the year,” said Rob Thummel, a portfolio manager at Tortoise Capital Advisors, which manages roughly $8 billion in energy-related assets. “We continue to see the potential for an undersupplied oil market going into the fall and winter,” he said, citing improved demand from China and shrinking exports from Russia.

Trading kicked off the session on a weaker note early Wednesday after the International Energy Agency said it sees global oil consumption rising this year by about 110,000 barrels a day less than its previous forecast. It still anticipates a 2 million barrel-a-day increase.

Oil hit the lowest since January earlier this month as traders attempted to price in a possible global slowdown, tighter monetary policy and lower energy demand. On Tuesday, hotter-than-expected US inflation prompted investors to bank on a continued path of sharp interest-rate hikes. The potential for further tightening has underpinned the outlook for slower growth, while commodity markets broadly are wrestling with lower liquidity.

The Energy Information Administration report provided a mixed bag of signals for the market to digest. US crude stockpiles rose 2.44 million barrels thought inventories in Cushing fell. One measure of fuel demand fell below 2020 levels, a dour signal for the national economy.

The four-week average of distillate supplied, a proxy for demand, plunged to the lowest seasonal point since the coronavirus pandemic all but halted business activity in the US two years ago. On a weekly basis, demand fell to the lowest absolute level since January 2021, causing stockpiles -- which include diesel -- to build by the most this year.

Elsewhere, diesel margins plunged across the globe. Industry consultant OilChem earlier said that China’s Ministry of Commerce may issue a fuel export quota of 1.5 million tons, in a fourth batch allocation. Lower Chinese exports have been one factor that helped to support refined products prices this year.

Chart of the Hour: US distillate stockpiles unexpectedly surged by most this year

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