Oil rises as markets weigh OPEC+ cuts against China demand concerns

An aerial view shows a crude oil tanker at an oil terminal off Waidiao island in Zhoushan, Zhejiang province, China Jan 4, 2023. China Daily via REUTERS

Oil prices rose slightly in Asian trade on Wednesday, after posting losses for four sessions, as investors weighed the effectiveness of an extension in OPEC+ cuts on tightening supplies against worries of a worsening demand outlook in China.

Brent crude futures climbed 17 cents to $77.37 a barrel by 0709 GMT. U.S. WTI crude futures rose by 6 cents to $72.38 a barrel.

Both benchmarks closed at their lowest level since July 6 in the previous session, with WTI seeing four consecutive days of declines.

“The only positive news over the last couple of days has been Saudi and Russian officials stating that the OPEC+ cuts could be extended or deepened depending on market situations prevailing,” said Suvro Sarkar, energy sector team lead at DBS Bank. “Beyond this … we do not see any positive catalysts for oil price in the near term.”

The Organization of the Petroleum Exporting Countries and allies such as Russia (OPEC+) agreed on voluntary output cuts of about 2.2 million barrels per day (bpd) for the first quarter of 2024 late last week. Those reductions include an extension of Saudi and Russian voluntary cuts of 1.3 million bpd.

Worries about a spillover effect from the Israel-Hamas conflict on supplies also provided respite to earlier price declines, analysts say.

“Additionally, fears of a potential escalation in the Israel-Hamas conflict came back into play after the U.S. held Iran responsible for an attack on U.S. vessels,” said Phillip Nova’s senior market analyst, Priyanka Sachdeva.

However, some analysts remained bearish on price movements.

“This may just be a short-term technical rebound, and the strength is very weak,” said CMC Markets’ Shanghai-based analyst Leon Li.

“At present, oil prices have entered a bearish trend…We have already seen an increase in inventories in the U.S. and prices are likely to fall below the $70 a barrel mark,” he added.

Concerns over China’s economic health, which could limit overall fuel demand in the world’s No. 2 oil consumer, also weighed.

On Tuesday, rating agency Moody’s lowered the outlook on China’s A1 rating to negative from stable, citing “increased risks related to structurally and persistently lower medium-term economic growth and the ongoing downsizing of the property sector”.

China will release preliminary trade data, including crude oil import data, on Thursday. Earlier expectations showed China’s refinery runs to have declined in November.

Weighing further on fundamentals, crude oil and fuel inventories in the U.S. rose in the week to Dec. 1, according to market sources citing American Petroleum Institute figures on Tuesday.

Crude stocks increased by 594,000 barrels, the sources said on condition of anonymity. Gasoline stockpiles gained by 2.8 million barrels, while distillate inventories rose nearly 1.9 million barrels.

U.S. government data on inventories is due on Wednesday.