Oil rises on fuel demand hopes, but gains capped by recession fears

Singapore – Oil prices edged higher on Wednesday on hopes of a recovery in fuel demand as China continues to ease its Covid-19 restrictions, though gains were capped by recession concerns and restarts at some US energy plants shut by winter storms.

Brent futures for February delivery rose 9c, or 0.1%, to $84.42 a barrel, by 4.06am GMT. US crude advanced 10c, or 0.1%, to $79.63 a barrel. Amid the optimistic market mood, both benchmarks hit their highest level in three weeks on Tuesday.

The hopes for a boost to demand for fuel in top crude oil importer China come as the world’s second-biggest economy moves towards reopening its borders next month after three years of stringent curbs on movement and businesses to counter the spread of Covid-19.

Chinese hospitals were under intense pressure due to a surge in Covid-19 infections as the country moves towards treating the virus as endemic.

The most recent Covid-19 policy easing in China will have a short-term positive effect specifically on international aviation, said Claudio Galimberti, senior vice-president at Rystad Energy.

“But to get to a full normalisation of China’s demand, we will need to wait two more months,” he added.

Prices were also buoyed by news that Russia aims to ban oil sales from February 1 to countries that abide by a G7 price cap imposed on December 5, according to a decree by President Vladimir Putin.

However, “while a Russian ban on oil sales would cut supply, this would be offset by lower demand due to a potential global economic recession next year”, said Leon Li, an analyst at CMC Markets.

Oil refiners in the US on Tuesday were working to resume operations at a dozen facilities knocked offline by the deep freeze, a recovery that in some cases will stretch into January.

Output has been disrupted by an Arctic blast sending temperatures well below freezing, cutting oil and gas production from North Dakota and Texas.

Meanwhile, US crude oil stocks were estimated to have fallen 1.6-million barrels last week, with distillate inventories also seen down, a preliminary Reuters poll showed on Monday.

Industry group American Petroleum Institute (API) is due to release data on US crude inventories at 4.30pm EDT (9.30pm GMT) on Wednesday. The Energy Information Administration (EIA), the statistical arm of the US department of energy, will release its own figures at 10.30am (3.30pm GMT) on Thursday. 

Reuters