Oil Prices Increase In Anticipation of A China Demand Recovery

In early Asian trading on Wednesday, oil prices increased by more than $1 per barrel on optimism of a demand revival in China as the country gradually eases some of its harsh COVID-19 containment restrictions.

Brent crude futures rose $1.15, or 1%, to $113.08 a barrel at 00:42 GMT, while U.S. West Texas Intermediate (WTI) crude futures rose $1.62, or 1.4%, to $114.02 a barrel, erasing some of the previous session's losses after oil prices plummeted by almost 2%.

On Tuesday, Shanghai reached the long-awaited benchmark of three consecutive days with no new COVID-19 cases outside of quarantine zones. On Monday, the city announced its plans to break a lockdown that has lasted for more than six weeks.

Stephen Innes, managing director of SPI Asset Management, stated in a client note: "Beyond the immediate term, less terrible news on China gives a nip in the tail in the shape of considerably greater oil demand and prices, which is positive for producers but negative for consumer sentiment."

U.S. crude and gasoline inventories decreased last week, market sources reported on Tuesday, citing American Petroleum Institute data. Wednesday is the anticipated release date for data from the U.S. government.

Russia's production decreased by about 9 percent in April, and the country, which is a member of the OPEC+ group of oil-producing nations, produced oil significantly below the levels required by an agreement to alleviate historic output restrictions established during the coronavirus pandemic's deadliest phase in 2020.

ANZ Research analysts said in a client note on Wednesday that there is ongoing pressure on prices following news that the United States is permitting Chevron Corp (NYSE:CVX) to negotiate oil licenses with Venezuela's national producer, temporarily eliminating a U.S. ban on such negotiations.

The planned adjustments may eventually result in more crude oil entering the market.

Monday's failure by the European Union to convince Hungary to rescind its veto of a proposed Russian oil embargo weighed on the market. However, some diplomats now point to a conference on May 30-31 as the time for an agreement on a phased prohibition.

Jerome Powell, chairman of the Federal Reserve in the United States, said on Tuesday that the central bank will raise interest rates as high as necessary to combat a surge in inflation, which he warned threatened the foundation of the economy.