Oil Prices Surge Amid Optimism for Recovery in Chinese Fuel Demand

By Gina Lee

Oil prices rose on Wednesday morning in Asia amid optimism regarding a potential recovery in fuel demand in China, as the country begins to lift some of its COVID-19 restrictions.

Prices increased by 0.38% to $112.35 and 0.82% to $110.53, bouncing back slightly after a nearly 2% decline in the previous session.

On Tuesday, Shanghai reported three consecutive days with no new COVID-19 cases outside quarantine zones and announced plans to end a lockdown that had lasted over six weeks.

Stephen Innes, managing director of SPI Asset Management, commented that while the immediate outlook is uncertain, improvements in China’s situation could stimulate higher oil demand and prices, benefiting producers but potentially straining consumer sentiment.

In the U.S., data from the American Petroleum Institute revealed a draw of 2.445 million barrels for the week ended May 12, contrasting with analysts’ forecasts of a build of 1.533 million barrels and a previous week’s build of 1.618 million barrels. Investors are awaiting further information from the U.S. Energy Information Administration, which is expected later in the day.

In Russia, oil production dropped nearly 9% in April 2022, falling well below the targets set by the OPEC+ agreement. Despite this, price pressures persist, with reports indicating that the U.S. is permitting Chevron to enter negotiations for oil licenses with Venezuela’s state-owned oil company. Analysts suggest that this could lead to an increase in crude oil supply in the market.

Additionally, the inability of the European Union to convince Hungary to lift its veto on an embargo on Russian oil continues to be a focal point for investors, although there is some optimism for progress during an upcoming summit at the end of May.

U.S. Federal Reserve Chairman Jerome Powell also reiterated on Tuesday that the central bank is prepared to raise interest rates as required to combat inflation.