Oil rises on hopes of improvement in China’s demand, possibility of change in OPEC+ production policy

Brent crude was up 22 cents, or 0.3%, at $86.35 a barrel by 0501 GMT, after falling 2.3% in the prior session. US West Texas Intermediate (WTI) crude climbed 13 cents, or 0.2%, to $80.26 a barrel, after falling 1.8% on Tuesday.

“Expectations of a recovery in China’s fuel demand in the second half of the year are rising and this is likely to support market sentiment,” said Hiroyuki Kikukawa, general manager at Nissan Securities.

Analysts at Bank of America Securities said the reopening of the Chinese economy could lead to a huge increase in demand over the next 18 months.

On the supply side, volumes should remain stable over the medium term as the Organization of the Petroleum Exporting Countries (OPEC) and its allies, a group known as OPEC+, are expected to maintain their output quotas.

An OPEC+ panel is likely to endorse the producer group’s current oil production policy when it meets next week, five OPEC+ sources said on Tuesday, as hopes of higher Chinese demand were balanced by concerns over inflation and the global economy.

OPEC+ decided in October to cut production by 2 million barrels per day from November to 2023 on a weak economic outlook.

However, a bigger-than-expected increase in US oil inventories reported after the market closed on Tuesday capped gains in oil prices.

US crude stocks rose by nearly 3.4 million barrels in the week ended January 20, according to market sources citing data from the American Petroleum Institute. An initial Reuters poll on Monday had nearly tripled the forecast for a 1 million build.

However, Nissan’s Kikukawa expects the build “to be temporary as supply disruptions from the cold snap in the United States a few weeks ago will only affect data over the next few weeks”.

Official data from the US Energy Information Administration will be released later on Wednesday.

Kikukawa expects WTI to trade between $75 and $85 a barrel in the coming weeks.

Markets are also watching for interest rate decisions from central banks for more trading signals.

“It appears that the absence of flamboyant Fed comments from the current blackout period has removed a significant turnaround for risk sentiment,” IG market analyst Yep Jun Rong said in a note.

The analyst said investors are waiting to see whether the US Federal Reserve will “react to the recent negative surprise in inflation and growth”.

Australian inflation hit a 33-year high in the last quarter due to a jump in travel and electricity costs, data showed on Wednesday, a shock result that could open the way for the country’s central bank to raise interest rates again next month. adds to.