Oil prices rose more than 1% on Wednesday and rebounded later on the previous day’s slump, as OPEC’s stronger outlook on China’s demand helped offset the bearish global investor sentiment following the recent US bank failures.
Brent crude futures were up 93 cents, or 1.2%, to $78.38 a barrel as of 0324 GMT. West Texas Intermediate crude futures (WTI) rose 96 cents, or 1.4%, to $72.29 a barrel.
On Tuesday, benchmarks fell more than 4% to a three-month low.
The oil market is recovering on its own after recent sharp losses, giving risk-taking investors the opportunity to take advantage of the decline. This time, OPEC’s upgraded Chinese oil demand outlook also provided support, but investors are still worried about the back-to-back financial crisis after the recent collapse of US banks.
The Organization of the Petroleum Exporting Countries (OPEC) on Tuesday further raised its forecast for Chinese oil demand growth in 2023 due to the relaxation of COVID-19 restrictions, even as it kept global demand completely flat, citing potential downside risks to world growth.
According to data encouraged by the fuel export policy, Chinese refineries processed 3.3% more crude oil in the first two months of 2023 compared to the same period of the previous year.
China’s demand recovery is affecting oil prices upwards. There is consensus that the oil supply-demand balance will tighten in the second half of the year, with the impact of the recovery in China, unless a serious global recession occurs.
The failures of Silicon Valley Bank and Signature Bank triggered concerns about risks to other banks from the US Federal Reserve’s sharp rate hikes last year. This has also encouraged speculation about whether the central bank will slow the pace of monetary tightening.
On Tuesday, US inflation data came in line with expectations, supporting the bets on a smaller rate hike at the Fed’s next week’s meeting.
Meanwhile, US crude inventories rose by about 1.2 million barrels in the week ended March 10, while fuel stocks fell, according to market sources citing figures from the American Petroleum Institute (API) on Tuesday.
On the supply side, it was said that OPEC and allied oil producers, including Russia, will adhere to the production cuts agreed upon in October until the end of the year.
The International Energy Agency’s (IEA) monthly report and the US Energy Information Administration’s weekly (EIA) inventory data will be announced today.