Oil prices steady on small rise in US crude stocks and weaker dollar

Crude markets have 'underpriced' China's recovery, says Japanese bank MUFG

Oil futures have gained for two straight weeks after China reopened its borders for the first time in three years. Reuters
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Oil prices were steady in Thursday morning trade after a smaller-than-expected rise in US crude stocks and a weaker dollar.

Brent, the benchmark for two thirds of the world’s oil, was 0.72 per cent higher at $86.74 a barrel at 4.01pm UAE time. West Texas Intermediate, the gauge that tracks US crude, was up 0.80 per cent at $80.79 a barrel.

“Crude prices are rising after the stockpiles posted a modest gain and a decent improvement with demand,” said Edward Moya, senior market analyst at Oanda.

US crude inventories rose by about 533,000 barrels last week, according to the US Energy Information Administration (EIA).

The indicator, which shows the level of oil and product stored, gives an overview of US petroleum demand. If the increase in crude inventories is more than expected, it implies weaker demand and is bearish for crude prices.

US petroleum stocks increased by 1.8 million barrels last week, while distillate fuel inventories rose by about 500,000 in the same period, the statistical arm of the US department of energy said.

Meanwhile, US crude exports surged nearly 22 per cent to 4.71 million barrels per day in the week ending January 20, their highest since November, the EIA said.

Earlier, data from the American Petroleum Institute showed that US crude stocks rose by about 3.4 million barrels last week.

“Lately, it seems this oil market has a tendency to lean towards a bullish spin after any major oil event,” Mr Moya said.

“If risk appetite continues to take a big hit from the tech-driven sell-off, that should also weigh on crude prices.”

Futures were also supported by a weaker dollar, which makes oil cheaper for holders of other currencies.

The US Dollar Index, a measure of the value of the greenback against a weighted basket of major currencies, was down 0.06 per cent at 101.58.

Oil futures have gained for two straight weeks after China — the world’s second-largest economy and top crude importer — reopened its borders for the first time in three years, triggering a sharp increase in airline bookings.

The market has "underpriced" China's recovery, according to Japanese bank MUFG.

"China is a dominant driver of commodities demand — consuming anything from about 10 [per cent] to 15 per cent of global [oil and gas] demand," said Ehsan Khoman, head of research — commodities, ESG and emerging markets at MUFG.

"As such, China’s reopening matters profoundly for commodities balances as well as market pricing. Yet, with China’s activity levels past their trough and mobility rapidly normalising, this does not tally up with the broad commodity positioning."

China's economy, which grew 3 per cent in 2022, is expected to improve and is highly likely to reach a normal growth rate in 2023, Vice Premier Liu He told the World Economic Forum in Davos last week.

Global oil demand will surge to a record this year, after the end of coronavirus restrictions in China, according to the International Energy Agency.

Oil demand will rise by 1.9 million bpd to 101.7 million bpd in 2023, said the IEA, which had previously estimated a growth of 1.7 million bpd.

Opec, meanwhile, has stuck to its global oil demand forecast for this year, despite an improving economic outlook in China.

The group still expects oil demand to grow by 2.2 million bpd this year, which is lower than its estimate of 2.5 million bpd growth for 2022.

Updated: January 26, 2023, 12:13 PM