Oil Rebounds on Inventories Support Despite Sour Demand Outlook

By Adedapo Adesanya

Oil settled slightly higher on Thursday amid lower crude inventories in the US and strong crude imports by China, but a weaker demand outlook kept investors cautious.

At the market, Brent futures moved up by 18 cents or 0.2 per cent to $79.64 a barrel, and the US West Texas Intermediate (WTI) futures improved by 28 cents or 0.4 per cent to $75.63 a barrel.

The market was able to keep up the momentum that came after the US Energy Information Administration (EIA) reported an inventory dip of 700,000 barrels for the week ending July 14, falling to 457.4 million barrels, a figure that is 1 per cent above the five-year average for this time of year, compared with an inventory build of 5.9 million barrels for the previous week.

Support on positive signs from China, the world’s largest importer, banking on earlier projections from the Organisation of the Petroleum Exporting Countries (OPEC) and the International Energy Agency (IEA), which both said China’s demand is expected to continue to rise in the second half of this year and remain the main driver of global growth.

China’s imports of crude oil from Russia hit an all-time high in June, Chinese government data showed on Thursday, even as discounts against international benchmarks narrowed.

However, China’s economic recovery following its end to COVID-19 curbs has fallen short of expectations. Its oil imports year-on-year surged by nearly half in June, but at the same time, stock levels rose to near an all-time high.

Also, the US Federal Reserve is expected to raise its benchmark overnight interest rate by another 25 basis points to the 5.25 per cent – 5.50 per cent range next week for a final time this rate-tightening cycle.

Market analysts noted that crude prices may struggle to find a clear direction given a mixed global demand outlook in the next few weeks.

They said the current reality showed that demand is a mixed picture with stronger gasoline and jet fuel demand but weaker petrochemicals and diesel.

Brent crude prices have broken through to a higher range this month after being stuck at $72-$78 in May and June, analysts added, after Saudi Arabia output cuts and geopolitical risks supported demand.