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Tuesday, July 16, 2024

China’s rising fuel demand raises oil prices

Oil prices rose on Monday after China rolled over liquidity measures to help its pandemic-hit economy, igniting hopes for a better fuel demand outlook from the world's top crude importer.

Oil prices rose on Monday after China rolled over liquidity measures to help its pandemic-hit economy, igniting hopes for a better fuel demand outlook from the world’s top crude importer.

Brent crude futures rose 81 cents, or 0.88%, to $92.44 a barrel by 0642 GMT, recovering from a 6.4% fall last week. U.S. West Texas Intermediate crude was at $86.33 a barrel, up 72 cents, or 0.84%, after a 7.6% decline last week.

China’s central bank rolled over maturing medium-term policy loans while keeping the interest rate unchanged for a second month on Monday.

Analysts said the full rollover is a signal that the central bank would continue to maintain loose monetary policy.

The country also vowed to greatly increase domestic energy supply capacity and step up risk controls in key commodities including coal, oil and gas, and electricity, a senior National Energy Administration official said on Monday.

China will further increase reserve capacities for key commodities, another state official told a news conference in Beijing.

Oil found support from a combination of factors, including Chinese President Xi Jinping’s comments at the Party Congress that reassured accommodative policies for the economy, a positive sign for demand outlook, CMC Markets analyst Tina Teng said.

China is expected to release trade and economic data this week. Although its third-quarter GDP growth could rebound from the previous quarter, President Xi’s stringent COVID-19 policy has the world’s No. 2 economy facing what will most likely be its worst performing year in almost half a century.

Looking ahead, oil prices are expected to remain volatile as production cuts by OPEC+ will tighten supplies ahead of the European Union embargo on Russian oil, while a strong U.S. dollar and further interest rate increases from the U.S. Federal Reserve limit price gains.

St. Louis Fed President James Bullard said on Friday inflation had become “pernicious” and difficult to arrest, and warranted continued “frontloading” through larger increases of three-quarters of a percentage point.

Member states of the Organization of the Production Exporting Countries and their allies, including Russia, lined up on Sunday to endorse the steep production cut agreed to this month after the White House, stepping up a war of words with Saudi Arabia, accused Riyadh of coercing other nations into supporting the move.

Read more: Biden disappointed with decision of OPEC+ to cut production

OPEC+ pledged on Oct. 5 to cut output by 2 million barrels per day, which will lead to an actual drop of about 1 million bpd as some members are already producing below their targets.

Despite this, top exporter Saudi Arabia will keep exports to key Asia markets steady in November.

“Tighter inventories for oil and oil products along with looming supply risks should keep prices volatile,” analysts at ANZ Research said in a note.

Reuters story with additional input by Global Village Space news desk.