Oil prices rebound on improving crude demand outlook

Pump jacks operate in front of a drilling rig in an oil field in Midland, Texas. Reuters

Oil prices rebounded on Thursday after falling for two straight days as prospects of higher demand offset a large increase in US crude stocks.

Brent, the benchmark for two thirds of the world’s oil, was trading 0.61 per cent higher at $85.90 a barrel at 11.23am UAE time.

West Texas Intermediate, the gauge that tracks US crude, was up 0.85 per cent at $79.26 a barrel.

On Wednesday, the International Energy Agency raised its 2023 global oil demand estimates on China’s reopening.

Global oil demand will rise by 2 million barrels per day to 101.9 million bpd this year, up from the IEA's forecast of 1.9 million bpd last month, it said.

China, which reopened its borders last month after adhering to a strict zero-Covid policy for about three years, will make up 900,000 bpd of the increase, the agency said.

The IEA, which expects Russian crude output to “contract” this year, said the country’s oil exports rose by 300,000 bpd in January from a month earlier.

Russia plans to slash its output by 500,000 bpd, or about 5 per cent of its production, in March in response to a price cap on exports of its refined products, state news agency Tass reported.

Oil prices rose more than 2 per cent last Friday following the report, but concerns about global growth have weighed on futures this week.

"The range-bound trading we are witnessing since Russia’s decision speaks to the realisation that these barrels, which are soon to be off global markets, were largely priced in," said Ehsan Khoman, head of commodities, ESG and emerging markets at MUFG.

The Japanese bank expects Russia to shut-in crude oil and refined supply of up to 1.3 million bpd this year as a result of the EU sanctions.

"Our conviction remains that against critically low inventories and limited spare production capacity, it won’t take much for resurgent Chinese demand to hit the wall of supply constraints this year," Mr Khoman said.

Meanwhile, US crude stocks jumped by 16.3 million barrels to 471.4 million barrels in the week that ended on February 10, their highest level since June 2021, the US Energy Information Administration (EIA) said.

The headline build was “well above” average analysts’ estimates of a 1.38 million increase, said Edward Moya, senior market analyst at Oanda.

The large build was mainly due to an upwards “adjustment” of 1.97 million bpd to last week’s crude supplies, which can be seen as a “balancing item”, the EIA said in its weekly report.

The American Petroleum Institute earlier reported a 10.51-million-barrel increase in US crude stockpiles, “so some traders were somewhat expecting a big build”, Mr Moya said.

On Tuesday, Opec raised its 2023 oil demand forecast by 100,000 bpd on expectations of an economic rebound in China.

The group expects global oil demand to grow by 2.3 million bpd this year, which is higher than its previous estimate of 2.2 million bpd growth for 2023.

However, high inflation, monetary tightening, sovereign debt levels and geopolitical tension could weigh on global oil demand prospects, Opec said.