Weaker dollar and supply concerns boost oil prices

London — Oil prices rose more than 2% on Wednesday on signs of tighter supply, a weaker dollar and optimism about a recovery in demand from China.

However, the likelihood that Opec+ will keep output unchanged at its coming meeting limited the gains.

Brent crude futures rose $2.06, or 2.48% to $85.09 a barrel by 10.44am GMT, though the more active February contract rose by 2.02% to $85.95. West Texas Intermediate (WTI) climbed $1.69, or 2.16%, to $79.89.

US crude oil stocks dropped by 7.9-million barrels in the week ended November 25, according to market sources who cited American Petroleum Institute figures on Tuesday.

Official figures are due from the US Energy Information Administration on Wednesday.

The International Energy Agency expects Russian crude production to be curtailed by about 2-million barrels a day by the end of the first quarter of 2023, executive director Fatih Birol said on Tuesday.

On the demand side, further support came from optimism about a recovery in demand from China, the world’s largest crude buyer. The country reported fewer Covid-19 infections than on Tuesday, while the market speculated that weekend protests could prompt an easing in travel restrictions.

The southern city of Guangzhou relaxed Covid prevention rules in several districts on Wednesday.

A decline in the US dollar was also bearish for prices as that makes dollar-denominated oil contracts cheaper for holders of other currencies, and boosts demand.

US Federal Reserve chair Jerome Powell is scheduled to speak about the economy and labour market on Wednesday, with investors looking for clues about when the Fed will slow the pace of its aggressive interest rate hikes.

Capping gains, the Opec+ decision to hold its December 4 meeting virtually signals little likelihood of a policy change, a source with direct knowledge of the matter said on Wednesday.

“Market fundamentals favour another cut, especially given the uncertainty over China’s Covid situation … Failure to do so risks sparking another selling frenzy,” said Stephen Brennock of oil broker PVM.

Reuters