Oil prices edged up on Thursday after recording three straight days of losses as a large drop in US crude stocks helped offset persistent worries about China’s economic growth.
Brent, the benchmark for two thirds of the world’s oil, was trading 0.90 per cent higher at $84.20 a barrel at 10.03pm UAE time, while West Texas Intermediate, the gauge that tracks US crude, was up 1.30 per cent at $80.41.
On Wednesday, Brent settled 1.70 per cent lower at $83.45 a barrel, while WTI was down 1.99 per cent at $79.38.
“The effects of weak data from Chinese economy and thereby the oil demand drove oil prices lower,” said Ehsan Khoman, head of commodities, ESG and emerging markets at MUFG.
“In addition, stronger-than-expected US consumer demand data raised US Federal Reserve’s policy tightening efficiency, causing the commodities complex to post losses, including oil,” Mr Khoman said in a research note on Thursday.
China, the world’s second-largest economy and top crude importer, will work to achieve its economic targets this year, Prime Minister Li Qiang was quoted as saying by the official Xinhua news agency on Wednesday.
The country, which is aiming for a gross domestic product growth rate of 5 per cent in 2023, will focus on expanding domestic demand through consumption and pro-investment policies, Mr Li said.
This week, China’s central bank cut key policy rates for the second time since June in an attempt to revive sagging economic growth.
However, weak economic data for July soured investor sentiment.
China’s industrial output and retail sales grew at a slower pace, compared with June, the National Bureau of Statistics said.
Despite growing concerns about the country’s economy, China’s refiners processed about 14.9 million barrels per day of crude in July, up more than 31 per cent from the same period a year earlier, MUFG said.
“These numbers suggest that China drew down crude oil inventories after fairly strong builds in both May and June,” Mr Khoman said.
Meanwhile, US crude stocks, an indicator of fuel demand in the world’s largest economy, fell by six million barrels last week to 439.7 million barrels, according to data from the Energy Information Administration.
Analysts polled by Reuters were expecting a drop of 2.3 million barrels.
Petroleum inventories decreased by 300,000 barrels in the week that ended on August 11, while distillate stocks rose by 300,000 barrels, the EIA data showed.
Policymakers at the US Federal Reserve continue to see “significant upside risks” to inflation that may require more monetary tightening, minutes released from the central bank's most recent meeting showed.
The minutes from the Fed's July 28-29 meeting showed that “a couple of participants” indicated a preference for leaving rates unchanged or signalled they would support a proposal to do so.
Last month, the Fed raised US interest rates by 25 basis points, its 11th increase since March 2022, as part of its efforts to lower inflationary pressure on the nation's economy.
This brought the Fed's benchmark rate to the target range of 5.25 per cent and 5.5 per cent, the highest in 22 years.
The central bank's next meeting will be held on September 19 and 20.
“Oil is also battling a strong dollar, which looks like it might not be done strengthening unless we get some action from China and Japan,” said Edward Moya, senior market analyst at Oanda.
The US Dollar Index – a measure of its value against a weighted basket of major currencies – has gained nearly 1 per cent over the past week.
“Looking ahead, we believe the impressive rebound in oil prices may lose some steam in the near term, as rising prices are expected to help boost production in the US,” Mr Khoman said.
“On the demand side, risks stem from lower than anticipated Chinese stimulus. Hedge fund managers are cutting net bullish bets after exuberance since end-June. Hence, we expect the current seven successive weeks’ rally to cool down in the short term.”