Oil held onto gains, supported by the prospect of looser lockdown restrictions in a Chinese megacity and the White House contemplating buying back oil to refill strategic reserves.
(Bloomberg) — Oil held onto gains, supported by the prospect of looser lockdown restrictions in a Chinese megacity and the White House contemplating buying back oil to refill strategic reserves.
West Texas Intermediate futures rose 2.5% to trade above $89 on Wednesday aided by a rally in other risk assets. Chengdu is easing Covid restrictions gradually after previous lockdown measures, a potential bright spot for demand in one of the world’s biggest oil consumers. Prices also rallied as the Biden administration considers refilling the Strategic Petroleum Reserve if prices fall below $80 a barrel.
If the administration starts to refill the SPR, that probably puts a floor on prices around $80 a barrel, with crude likely to rise closer to $100 a barrel, said Matt Sallee, a portfolio manager at Tortoise, a firm that manages roughly $8 billion in energy-related assets. “I think at a higher level that the market needs to realize just how tight US crude supplies are and how much the rest of the world is counting on US supply.”
Earlier on Wednesday, 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, though it still anticipates a 2 million barrel-a-day increase.
Meanwhile, traders parsed a mixed Energy Information Administration report as US crude stockpiles rose 2.44 million barrels last week, while inventories at the largest storage hub dropped to the lowest since July. Gasoline inventories fell.
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.
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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