Oil rises as US stockpiles plunge, markets bet on China reopen

Oil prices rallied as government data showed US stockpiles plunging, while traders accelerated buying amid optimism that China will loosen its Covid restrictions. 

West Texas Intermediate rose as much as 4% to over $81 a barrel on Wednesday. US crude inventories fell by 12.6 million barrels last week, the biggest decline since June 2019, according to Energy Information Administration data. The draw coincides with US exports of crude and refined products rising to a record.

Oil prices were already elevated before the EIA report on optimism that China’s economy is due to improve as officials there seek ways to ease restrictions. China adjusted Covid-19 rules in two major cities, Guangzhou and Zhengzhou, replacing broad lockdowns with more targeted limitations. 

“Oil is starting to get its groove back and it looks like both supply and demand drivers could turn bullish for crude,” said Ed Moya, senior market analyst at Oanda Corp. “If China’s Covid rules are slowly eased and OPEC stays the course, crude prices could rally another 5-10% here.”

Markets have experienced intense headline volatility the last few sessions in advance of the meeting this weekend between the Organization of Petroleum Exporting Countries and its allies. Signs of an oversupplied market in recent weeks briefly pushed prices to lows not seen since last year, leading to speculation that the production cartel could cut output further to tighten supplies. While deeper supply cuts may still be discussed, many analysts expect the group will hold production steady.

Crude has recovered in recent days as EU discussions on a Russian price cap continue. Without the measures, companies will have no access to European or UK insurance when transporting the country’s crude, potentially risking supply disruption. European diplomats have been seeking a compromise on the level of the US-led cap, with US energy security adviser Amos Hochstein saying the plan needs to strike a “delicate balance.”

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