Yahoo Finance Oil prices rise as investors weigh supply and demand concerns
A look at the supply and demand factors moving the price of crude
Oil prices climbed on Wednesday in early London trade as investors weighed the strength of demand for crude against supply concerns.
The rise also comes as traders await the latest crude stockpile data from the US government.
Ahead of the update later, Reuters quoted sources citing that US crude stock had fallen by about 6.1m barrels in the week ended 21st April.
At the time of writing, US West Texas Intermediate (CL=F) was trading up 0.77% at $77.66 (£62.34) a barrel, while Brent crude (BZ=F) also rose – by 0.58% to $81.07.
It follows crude losing more than 2% on Tuesday after two sessions of gains.
So what are the key factors at play causing oil prices to rise and fall?
Factors supporting oil prices
Oil prices continue to be volatile to news headlines and sentiment regarding demand from China, as the world’s top crude importer.
The country’s recent positive economic growth figures boosted sentiment for oil as gross domestic product (GDP) grew 4.5% in the last quarter compared to a year earlier.
Strong holiday travel in China has also added price support with traders optimistic that it will further boost demand.
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Involuntary and planned supply cuts have also added support to oil prices.
Iraq's northern oil exports have shown little sign of a restart soon after a standstill and members of OPEC+ are preparing for the start of their crude output cuts, which they announced on 2 April.
Downward price pressures
Rising interest rates and looming recessions have helped cap oil prices as investors consider the possible impact on demand.
Analysts are expecting the US Federal Reserve, the Bank of England (BoE) and the European Central Bank to all raise rates at their upcoming meetings.
Independent macro analyst Piero Cingari said that the beneficial effect of China's economic reopening may more than offset any downturn in US demand.
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“Given OPEC's output cuts, it is evident that supply is limited. Everything is clearly centred on the demand. China is a reopening economy, thus demand there is increasing; the western world is the most concerned. However, fears of a premature recession have yet to materialise in both the United States and Europe.
“Service activity and consumer activity remain robust, therefore I tend to believe that there is still an encouraging market for oil prices,” he said.
Ajay Parmar, associate director of global oil markets at HSBC, also noted on Wednesday that many refineries in the US and elsewhere are currently offline due to maintenance, which is having a direct negative impact on oil buying levels.
“Wider uncertainty around global economic growth and the interest rate hiking cycle will also help to ensure oil prices remain rangebound in the near term.
“Later in the year, the combination of OPEC+ cuts and higher oil demand from China will lead to a significantly tighter market, which will support oil prices,” he said.
Parmar said it’s all about the second half of the year in oil markets now.
Oil price outlook
Cingari also noted that the US has hinted at refilling its SPR, which he said could effectively create a strong price floor of around $70 for oil.
At the beginning of the month, analysts were of the view that oil prices could soon break the $100 level in the short-term, after OPEC+ announced the crude cuts.
However, Craig Erlam, senior market analyst at OANDA, questioned whether the calls were premature when oil prices declined on Tuesday.
“It would appear crude prices have now settled back into their pre-OPEC+ intervention trading ranges, with Brent between $78-$88 and WTI $73-$83,” he said.
He said the move lower could even be another push to close the OPEC+ gap from a few weeks ago after falling just short late last week.
“Calls for $100 in the aftermath of the OPEC+ decision may have been premature, although, amid such an uncertain outlook, it is still possible if a soft landing is achieved. The second half of the year is poised to be more challenging for the global economy though as conditions tighten further and prior tightening takes hold,” Erlam added.
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