Oil prices rise despite US inventory rise, easing of Chinese COVID-19 lockdowns

Global oil prices rose on Wednesday on the easing of Chinese COVID-19 related lockdowns and a possible strike by Norwegian oil workers. Oil prices increased despite a likely rise in US oil stocks.

Giovanni Staunovo, analyst at UBS, said, “Despite the API report showing builds for crude and oil products, oil prices are higher, supported by expectation of China easing the COVID restrictions, translating in higher demand and imports this summer.”

Brent crude futures were up $1.01, or 0.8 per cent, at $121.58 a barrel at 0927 GMT.

Several Norwegian oil workers have also planned a strike from June 12 over pay, further putting crude output at risk of shutdown.

According to the market sources, American Petroleum Institute figures, released on Tuesday, showed that the US crude stocks were up by 1.8 million barrels for the week ended June 3, while gasoline and distillate inventories rose by 1.8 million barrels and 3.4 million barrels, respectively.

In addition to this, the World Bank had also slashed its global growth forecast for 2022 by nearly a third citing that Russia's invasion of Ukraine had compounded the damage from the COVID-19 pandemic, and that many countries now faced recession.

Meanwhile, global crude and oil product supplies remain tight, boosting Asian refiners' diesel margins to record levels, as Western sanctions hamper exports from major producer Russia.

The CEO of global commodities trader Trafigura said oil prices could soon hit $150 a barrel and go higher this year, with demand destruction likely by the end of the year.

Most refineries globally are already running close to capacity to meet rising demand from the pandemic recovery and to replace lost Russian supplies.

JP Morgan analysts estimate Russia has cut about 500,000 to 700,000 barrels per day of oil product exports because it now finds marketing fuel harder than marketing crude.

"Unless new Middle East capacity comes online more quickly than we expect or China decides to lift its products export caps, the shortage of clean products will only get worse as demand for transport fuels picks up during the northern hemisphere summer," they said in a note.

On Tuesday, China topped up its first batch of product export quotas aimed at reducing high domestic inventories, which have risen as pandemic lockdowns have dented demand. Despite the latest additions to the quotas, their volumes remain much lower than last year, however.

(With input from agencies)