Oil futures headed higher on Wednesday, as China’s rollback of some COVID-19 measures boosted the outlook for energy demand and traders awaited a report from the U.S. government that’s expected to show a weekly decline in domestic crude inventories.
Worries about more aggressive monetary tightening by the Federal Reserve rippled across markets in recent days, pulling oil prices down for three sessions in a row, despite concerns about the impact of the Group of Seven price cap on Russian oil imposed on Monday.
West Texas Intermediate crude for January delivery
rose 58 cents, or 0.8%, to trade at $74.83 a barrel on the New York Mercantile Exchange. On Tuesday, it marked the lowest finish for a front-month contract since Dec. 23, 2021, according to Dow Jones Market Data.
February Brent crude
the global benchmark, tacked on 75 cents, or 1%, to $80.10 a barrel on ICE Futures Europe after ending Tuesday at the lowest since Jan. 3.
Back on Nymex, January gasoline
fell 0.3% to $2.1418 a gallon, while January heating oil
traded at $2.9004 a gallon, down 0.5%.
- January natural gas traded at $5.545 per million British thermal units, up 1.4%.
China has announced measures to roll back some of its COVID-19 restrictions. Those include limiting harsh lockdowns and ordering schools without known infections to resume regular classes, the Associated Press reported Wednesday.
“Traders have been looking for more positive news when it comes to China’s zero-tolerance COVID policies,” said Naeem Aslam, chief market analyst at AvaTrade, in a market update.
And now “we have heard from the officials about a further easing of those measures,” providing support to investor sentiment in Asia — with the “spillover of this sentiment” likely impacting Europe and the U.S. given that China is the second biggest economy in the world, he said.
But Stephen Innes, managing partner at SPI Asset Management, warned that “China’s COVID tsunami is coming as the world’s most populous nation is being forced onto a zero-COVID off-ramp,” after a “way too early China reopening” supported some markets. “It will be a tale of two haves in China, where winter oil prices and COVID mobility woes give way to hope springs eternal in Q2.”
Meanwhile, the Energy Information Administration will release its weekly U.S. petroleum supply report Wednesday morning.
Analysts expect the report to show a supply decline of 2.4 million barrels for crude, along with inventory gains of 2.9 million barrels for gasoline and 1.9 million barrels for distillates, according to a survey conducted by S&P Global Commodity Insights.
The American Petroleum Institute, a trade group, reported late Tuesday that U.S. supplies of crude oil fell by 6.4 million barrels last week, Dow Jones reported, citing a source.
In a monthly report Tuesday, the EIA lowered its 2022 and 2023 price forecasts for WTI and Brent crude, and modestly raised its expectations for U.S. oil production this year and next.