Oil prices fall as rising crude supplies offset China recovery hopes

US crude inventories rose by about six million barrels last week

A pump jack in Texas. Further oil price gains were capped by another rise in US crude stocks. Reuters

Oil prices slipped on Wednesday, reversing earlier gains, as a large build-up in US crude stocks offset optimism around China's economic recovery.

Brent, the benchmark for two thirds of the world’s oil, was trading 0.59 per cent lower at $82.96 a barrel at 4.17pm UAE time, while West Texas Intermediate, the gauge that tracks US crude, was down 0.87 per cent at $76.38 a barrel.

Brent prices rose 1.8 per cent on Tuesday settling at $83.89, while WTI closed up 1.8 per cent to $77.05.

The purchasing managers' index reading, an indicator of business activity, for China's manufacturing sector stood at 52.6 in February, up from 50.1 in January, above the neutral 50 mark that separates contraction from expansion.

“Data from China is showing a recovery under way but not complete as some measures like industrial production or retail activity still remain sluggish,” said Edward Bell, senior director of market economics at Emirates NBD.

“However, as there is growing confidence that the Covid-19 pandemic has been dealt with, that should help to support greater private consumption.”

The International Energy Agency expects global oil demand to surge to record levels this year on China’s recovery.

Global oil demand will rise by 2 million barrels per day to 101.9 million bpd in 2023, the agency said in its February oil market report.

It had previously forecast a growth of 1.9 million bpd. Further oil price gains were capped by another rise in US crude stocks.

US crude inventories — an indicator of petroleum demand — rose by 6.2 million barrels last week, but petrol and distillate stockpiles fell, according to Emirates NBD, which cited the American Petroleum Institute’s latest weekly figures.

The US Energy Information Administration will release its official figures today.

Brent is down by about 2.4 per cent since the start of the year amid expectations of further interest rate increases by central banks around the world and rising US crude stocks.