Tokyo/Singapore, Jan. 25 (BNA): Crude oil prices rose on Wednesday as optimism about demand recovery in China and a possible unchanging decision to cut production by major oil producers offset fears of a global recession.
Brent crude rose 22 cents, or 0.3%, to $86.35 a barrel by 0501 GMT, after falling 2.3% in the previous session, Reuters reported.
US West Texas Intermediate crude jumped 13 cents, or 0.2%, to $80.26 a barrel, after falling 1.8% on Tuesday.
“Expectations that Chinese fuel demand will recover in the second half of the year are increasing and are likely to support market sentiment,” said Hiroyuki Kikukawa, general manager of research at Nissan Securities.
Analysts from Bank of America Securities said that reopening the Chinese economy could unleash a large wave of pent-up demand over the next 18 months.
On the supply side, volumes should remain steady over the medium term as the Organization of the Petroleum Exporting Countries (OPEC) and its allies, a group known as OPEC+, are expected to maintain their production quotas.
Five OPEC+ sources said on Tuesday that the OPEC+ committee is likely to endorse the producer group’s current oil production policy when it meets next week, as hopes for a boost in Chinese demand balance concerns about inflation and the global economy.
OPEC+ decided in October to cut production by 2 million barrels per day from November until 2023 in light of a weaker economic outlook.
However, the gains in oil prices were capped by a larger-than-expected build in US oil inventories reported after the market stabilized on Tuesday.
US crude inventories rose by about 3.4 million barrels in the week ending January 20, according to market sources citing American Petroleum Institute figures. That’s triple the forecast of a build of about 1 million in a preliminary Reuters poll on Monday.
However, Nissan’s Kikukawa expects the build to be “temporary because the outage from the cold snap in the US a few weeks ago will only affect the data for the next two weeks.”
Official data from the US Energy Information Administration will be released later on Wednesday.
Kikukawa expects WTI to trade in a range of $75 to $85 per barrel in the coming weeks.
The markets are also watching interest rate decisions from central banks for more trading signals.
“The absence of the Fed’s hawkish comments on the current blackout period appears to have removed a major drag on risk sentiment for the time being, providing some renewed impetus in growth,” Yeap Jun Rong, market analyst at IG, said in a note.
The analyst added that investors are waiting to see if the US Federal Reserve will “react to the recent surprise drop in inflation and growth” when it meets next week.
Data on Wednesday showed that Australian inflation jumped to a 33-year high in the latest quarter as the cost of travel and electricity rose, a shock outcome that adds to the case for the country’s central bank to raise interest rates again next month.