Oil Flips to Gain as China Recovery Bolsters Demand Outlook

(Bloomberg) -- Oil rose as data showing a strong recovery in Chinese factory activity bolstered the outlook for energy demand in the world’s biggest crude importer, offsetting concerns about rising inventories in the US.

West Texas Intermediate erased an earlier drop to advance above $77 a barrel. China’s manufacturing activity recorded the biggest monthly improvement in more than a decade in February following the ditching of Covid Zero late last year. Oil’s jump came alongside gains in other commodities including copper.

Crude has softened this year as the the prospect of tighter US monetary policy and rising inventories have so far outweighed optimism that Chinese demand will strengthen as activity picks up. Russian flows are also in focus as western sanctions and bans linked to the war in Ukraine tighten. Although Moscow has largely managed to keep exports going by finding new buyers, there are signs of friction in markets including India, a key outlet for Russian crude.

Russia has said it planned to cut daily production by 500,000 barrels a day from this month, presenting its decision as a retaliation against the web of sanctions. The European Union, however, said that Moscow had been forced by the curbs to cut back, while RBC Capital Markets said the decision may reflect its difficultly maintaining output from challenging fields.

“The big question for oil markets in coming months will be the extent that Russia’s oil and refined-product exports are upended,” said Vivek Dhar, director of mining and energy commodities research at Commonwealth Bank of Australia. “It’s worth noting that markets have generally overestimated the extent of Russian oil supply disruptions since the Ukraine war began.”

In the US, commercial stockpiles have expanded significantly in recent months, signaling ample crude supply in the world’s largest economy. On Tuesday, the American Petroleum Institute reported US inventories rose 6.2 million barrels last week, according to people familiar with the figures. An official breakdown comes later on Wednesday.

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